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Table of Contents1
Table of Contents2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | ||
ý |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the fiscal year ended April 1, 2010 |
||
OR |
||
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission file number 1-33344
MARQUEE HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
77-0642885 (I.R.S. Employer Identification No.) |
|
920 Main Kansas City, Missouri (Address of principal executive offices) |
64105 (Zip Code) |
Registrant's telephone number, including area code: (816) 221-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter.
No voting stock of Marquee Holdings Inc. is held by non-affiliates of Marquee Holdings Inc.
Title of each class of common stock | Number of shares Outstanding as of May 7, 2010 | |
---|---|---|
Common Stock, 1¢ par value | 1 |
DOCUMENTS INCORPORATED BY REFERENCE
None
FOR THE FISCAL YEAR ENDED APRIL 1, 2010
INDEX
2
In addition to historical information, this Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The words "forecast," "estimate," "project," "intend," "expect," "should," "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including those discussed in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Marquee Holdings Inc.," which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
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- national, regional and local economic conditions that may affect the markets in which we or our joint venture investees
operate;
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- the levels of expenditures on entertainment in general and movie theatres in particular;
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- increased competition within movie exhibition or other competitive entertainment mediums;
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- technological changes and innovations, including alternative methods for delivering movies to consumers;
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- the popularity of major motion picture releases;
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- shifts in population and other demographics;
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- our ability to renew expiring contracts at favorable rates, or to replace them with new contracts that are comparably
favorable to us;
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- our ability to integrate the Kerasotes theatres with minimal disruption to our business;
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- our need for, and ability to obtain, additional funding for acquisitions and operations;
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- risks and uncertainties relating to our significant indebtedness;
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- fluctuations in operating costs;
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- capital expenditure requirements;
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- changes in interest rates; and
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- changes in accounting principles, policies or guidelines.
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative but not exhaustive. In addition, new risks and uncertainties may arise from time to time. Accordingly, all forward-looking statements should be evaluated with an understanding of their inherent uncertainty.
Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
3
(a) General Development of Business
Marquee Holdings Inc. ("Holdings" or the "Company") is organized as a holding company with no operations of its own. Holdings was incorporated on July 16, 2004. We conduct our business through our subsidiaries including AMC Entertainment Inc. ("AMC Entertainment" or "AMCE"). AMCE's principal directly owned subsidiaries are American Multi-Cinema, Inc. ("AMC"), and AMC Entertainment International, Inc. ("AMCEI"). We conduct our theatrical exhibition business through AMC and its subsidiaries and AMCEI.
AMCE is a wholly owned subsidiary of Marquee Holdings Inc., an investment vehicle owned through AMC Entertainment Holdings, Inc. ("Parent") by J.P. Morgan Partners, LLC ("JPMP"), Apollo Management, L.P. and certain related investments funds ("Apollo") and affiliates of Bain Capital Partners ("Bain"). The Carlyle Group ("Carlyle") and Spectrum Equity Investors ("Spectrum") (collectively with JPMP and Apollo the "Sponsors").
AMCE was founded in Kansas City, Missouri in 1920. AMCE was incorporated under the laws of the state of Delaware on June 13, 1983. We maintain our principal executive offices at 920 Main Street, Kansas City, Missouri 64105. Our telephone number at such address is (816) 221-4000. Our Internet address is www.amctheatres.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K, and amendments to these Reports are available free of charge on our Internet website under the heading "Investor relations" as soon as practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
(b) Financial Information about Segments
In both fiscal 2010 and 2009, we identified one reportable segment for our theatrical exhibition operations. Previously, we had three operating segments which consisted of United States and Canada Theatrical Exhibition, International Theatrical Exhibition, and Other. The reduction in the number of operating segments was a result of the disposition of Cinemex in December 2008. Cinemex was previously reported in the International Theatrical Exhibition operating segment and accounted for a substantial majority of that segment. In addition, in fiscal 2009, we consolidated the Other operating segment with the United States and Canada Theatrical Exhibition operating segment due to a previous contribution of advertising net assets to National CineMedia, LLC ("NCM"). In fiscal 2009, the United States and Canada Theatrical Exhibition operating segment was renamed the Theatrical Exhibition operating segment. Certain prior period information has been reclassified to conform to the current period presentation.
For information about our operating segment, see Note 15Operating Segment to the Consolidated Financial Statements under Part II Item 8 of this Annual Report on Form 10-K.
(c) Narrative Description of Business
We are one of the world's leading theatrical exhibition companies based on a number of measures, including total revenues, total number of screens and annual attendance. For the fiscal year ended April 1, 2010, AMCE had revenues of $2,417,739,000 and earnings from continuing operations of $77,324,000. As of April 1, 2010, we owned, operated or held interests in 297 theatres with a total of 4,513 screens, approximately 99% of which were located in the United States and Canada. Our theatres are primarily located in large urban markets in which we have a strong market position relative to our competition. As of April 1, 2010, we operated 81 IMAX screens, which made us the largest IMAX exhibitor in the world and we operated 594 digital screens, 475 of which were equipped with RealD 3D capabilities.
4
We have improved and plan to continue to invest in the quality of our theatre circuit by adding new screens through new builds (including expansions) and acquisitions, by repurposing theatres to incorporate new concepts and technologies and by disposing of older screens through closures and sales. For instance, in the last two fiscal years we have invested $58,200,000 to introduce new sight and sound platforms (IMAX, 3D, Enhanced Theatre Experience ("ETX")) and new food and beverage concepts including in-theatre dining, all of which provide our customers an enhanced movie-going experience significantly differentiated from traditional offerings. We contributed 342 digital projection systems that we owned to Digital Cinema Implementation Partners, LLC on March 10, 2010 as part of our initial investment in DCIP of $21,768,000.
The following table provides detail with respect to Digital, IMAX, 3D and deployment of our expanded food and beverage offerings as deployed throughout our circuit on April 1, 2010.
Format
|
Theatres | Screens | Planned Fiscal 2011 Screen Deployment |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Digital |
262 | 594 | 1,150 - 1,250 | |||||||
3D |
250 | 475 | 550 - 650 | |||||||
IMAX |
81 | 81 | 25 - 30 | |||||||
ETX |
4 | 4 | 20 - 25 | |||||||
In-theatre dining |
3 | 20 | 40 - 60 |
5
The following table provides detail with respect to the geographic location of our Theatrical Exhibition circuit as of April 1, 2010:
Theatrical Exhibition
|
Theatres(1) | Screens(1) | ||||||
---|---|---|---|---|---|---|---|---|
California |
42 | 651 | ||||||
Texas |
22 | 437 | ||||||
Florida |
21 | 368 | ||||||
New Jersey |
23 | 304 | ||||||
Illinois |
18 | 271 | ||||||
New York |
25 | 267 | ||||||
Michigan |
11 | 194 | ||||||
Arizona |
9 | 183 | ||||||
Georgia |
11 | 177 | ||||||
Pennsylvania |
12 | 142 | ||||||
Washington |
13 | 141 | ||||||
Massachusetts |
10 | 129 | ||||||
Maryland |
12 | 127 | ||||||
Missouri |
9 | 123 | ||||||
Virginia |
7 | 113 | ||||||
Ohio |
5 | 86 | ||||||
Colorado |
4 | 74 | ||||||
Louisiana |
5 | 68 | ||||||
Minnesota |
4 | 64 | ||||||
North Carolina |
3 | 60 | ||||||
Oklahoma |
3 | 60 | ||||||
Kansas |
2 | 48 | ||||||
Connecticut |
2 | 36 | ||||||
Indiana |
2 | 28 | ||||||
Nebraska |
1 | 24 | ||||||
District of Columbia |
3 | 22 | ||||||
Kentucky |
1 | 20 | ||||||
Wisconsin |
1 | 18 | ||||||
Arkansas |
1 | 16 | ||||||
South Carolina |
1 | 14 | ||||||
Utah |
1 | 9 | ||||||
Canada |
8 | 184 | ||||||
China (Hong Kong)(2) |
2 | 13 | ||||||
France |
1 | 14 | ||||||
United Kingdom |
2 | 28 | ||||||
Total Theatrical Exhibition |
297 | 4,513 | ||||||
- (1)
- Included
in the above table are eight theatres and 83 screens that we manage or in which we have a partial interest.
- (2)
- In Hong Kong, we maintain a partial interest represented by a license agreement for use of our trademark.
We have improved the quality of our theatre circuit by adding new screens through new builds (including expansions) and acquisitions, by transforming theatres to incorporate new concepts and technologies, and by disposing of older screens through closures and sales. As of April 1, 2010, 3,505, or approximately 78%, of our screens were located in megaplex theatres. Our average number of
6
screens per theatre as of April 1, 2010 was 15.2, which was more than twice the National Association of Theatre Owners average of 6.9 for calendar year 2009 and higher than any of our peer competitors.
We were founded in 1920 and since that time have pioneered many of the industry's most important innovations, including the multiplex theatre format in the early 1960s and the North American megaplex theatre format in the mid-1990s. In addition, we have acquired some of the most respected companies in the theatrical exhibition industry, including Loews and General Cinema and subsequent to the end of fiscal year 2010, Kerasotes. We have a demonstrated track record of successfully integrating those companies through timely conversion to AMC's operating procedures, headcount reductions, consolidation of corporate functions and adoption of best practices.
The following table sets forth historical information of AMC Entertainment, on a continuing operations basis, concerning new builds (including expansions), acquisitions and dispositions and end of period operated theatres and screens through April 1, 2010:
|
New Builds | Acquisitions | Closures/Dispositions | Total Theatres | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year
|
Number of Theatres |
Number of Screens |
Number of Theatres |
Number of Screens |
Number of Theatres |
Number of Screens |
Number of Theatres |
Number of Screens |
|||||||||||||||||
2006 |
7 | 106 | 116 | 1,363 | 7 | 60 | 335 | 4,770 | |||||||||||||||||
2007 |
7 | 107 | 2 | 32 | 26 | 243 | 318 | 4,666 | |||||||||||||||||
2008 |
9 | 136 | | | 18 | 196 | 309 | 4,606 | |||||||||||||||||
2009 |
6 | 83 | | | 8 | 77 | 307 | 4,612 | |||||||||||||||||
2010 |
1 | 6 | | | 11 | 105 | 297 | 4,513 | |||||||||||||||||
|
30 | 438 | 118 | 1,395 | 70 | 681 | |||||||||||||||||||
Subsequent to April 1, 2010, we completed our acquisition of Kerasotes, as more fully described under "Mergers and Acquisitions," which will increase our theatre and screen count by 83 and 812, respectively.
We have also created and invested in a number of allied businesses and strategic initiatives that have created differentiated viewing formats and experiences, greater variety in food and beverage options and value appreciation for our Company. We believe these initiatives will continue to generate incremental value for our Company in the future. For example:
-
- We are the world's largest IMAX exhibitor with 81 screens as of April 1, 2010. With a 43% market share in the U.S.,
our IMAX screen count is nearly twice the screen count of the second largest U.S. IMAX exhibitor. During June 2010, we announced an expansion of our IMAX relationship. Under this expanded agreement,
we expect to increase our IMAX screen count to 115 during fiscal year 2012.
-
- During fiscal 2010, we introduced our proprietary large screen digital format, ETX, at four locations. ETX features
wall-to-wall screens that are 20% larger than traditional screens, a custom sound system three times more powerful than a traditional auditorium, and digital projection having twice the clarity of
high definition. Over the next three years, we intend to renovate and upgrade approximately 70 screens to our ETX network across our theatres.
-
- During fiscal 2010, Digital Cinema Implementation Partners LLC ("DCIP"), our joint venture with two other
exhibitors, completed its formation and $660 million funding to facilitate the financing and deployment of digital technology in our theatres. We anticipate that our deployment of digital
projection systems should take three and a half years to complete. Future digital cinema developments will be managed by DCIP, subject to certain approvals.
-
- To complement our deployment of digital technology, in 2006 we partnered with RealD to install their 3D systems in our theatres. As of April 1, 2010, we had 475 RealD enabled systems.
7
-
- As of April 1, 2010, we had eight theatres featuring our proprietary food and beverage concepts. We believe that
these enhanced food and beverage concepts allow us to offer a more diverse array of food types such as expanded menus and venues including in-theatre dining, which should appeal to a
greater cross section of potential customers. We plan to continue our expanded food and beverage investments to cover an additional 125 to 150 theatres over the next three years.
-
- We are a founding member of NCM, a cinema screen advertising venture. As of April 1, 2010, we had an 18.23%
interest in NCM. See Note 5-Investments to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. NCM operates an
in-theatre digital network in the United States. The digital network consists of projectors used to display advertising and other non-film events. NCM's primary activities that
impact our theatres include:
-
- advertising through its branded "First Look" pre-feature
entertainment program, and lobby promotions and displays,
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- live and pre-recorded networked and single-site meetings and events, and
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- live and pre-recorded concerts, sporting events and other non-film entertainment programming.
Concurrent with our digital rollout, we plan to have enabled 1,500 RealD screens across our theatre network by the end of fiscal year 2012.
-
- Our ticket inventory is currently on sale at two different Internet ticketing vendors. We are a founding partner and currently own approximately 26% of MovieTickets.com, an Internet ticketing venture representing over 150 exhibitors with 12,000 screens. During 2009, MovieTickets.com sold over 15 million tickets, including approximately 6.8 million for AMC. We also partner with Fandango for Internet ticketing services for certain of our theatres. During 2009, Fandango sold over 24 million tickets, including approximately four million for AMC.
We believe that the reach, scope and digital delivery capability of NCM's network provides an effective platform for national, regional and local advertisers to reach an engaged audience. We receive a monthly theatre access fee for participation in the NCM network. In addition, we are entitled to receive mandatory quarterly distributions of excess cash from NCM.
Disposition of International Theatrical Exhibition Operating Segment
From fiscal 2006 to fiscal 2009 we disposed of the theatres owned and operated by us in Japan, Hong Kong, Spain, Portugal and Mexico, as well as all joint venture ownership interests in international theatres in Argentina, Brazil, Chile, Uruguay and Spain. The operations and cash flows of these theatres have been eliminated from our ongoing operations as a result of the dispositions. We do not have any significant continuing involvement in these theatres. The results of operations of those theatres owned and operated by us have been classified as discontinued operations for all periods presented.
Mergers and Acquisitions
In January 2006, Holdings merged with LCE Holdings Inc. ("LCE Holdings"), the parent of Loews Cineplex Entertainment Corporation ("Loews"), with Holdings continuing as the holding company for the merged businesses, and Loews merged with and into AMC Entertainment, with AMCE continuing after the merger (the "Merger," and collectively, the "Mergers"). Operating results of the acquired theatres are included in our consolidated statements of operations from January 26, 2006.
8
On June 11, 2007, Marquee Merger Sub Inc. ("merger sub"), a wholly-owned subsidiary of Parent, merged with and into Holdings, with Holdings continuing as the surviving corporation (the "holdco merger"). As a result of the holdco merger, (i) Holdings became a wholly owned subsidiary of Parent, a newly formed entity controlled by the Sponsors, (ii) each share of Holdings' common stock that was issued and outstanding immediately prior to the effective time of the holdco merger was automatically converted into the right to receive a substantially identical share of common stock of Parent, and (iii) as further described in this report, each of Holdings' governance agreements was superseded by a substantially identical governance agreement entered into by and among Parent, the Sponsors and our other stockholders. The holdco merger was effected by the Sponsors to facilitate a previously announced debt financing by Parent and a related dividend to Holdings' stockholders.
On December 9, 2009, we entered into a definitive agreement with Kerasotes ShowPlace Theatres, LLC ("Kerasotes") to acquire substantially all of the assets of Kerasotes. Kerasotes operated 95 theatres and 972 screens in mid-sized, suburban and metropolitan markets, primarily in the Midwest. More than three quarters of the Kerasotes theatres feature stadium seating and almost 90 percent have been built since 1994. On May 24, 2010, we completed the acquisition. The purchase price for the Kerasotes theatres paid in cash at closing was $275,000,000 and is subject to working capital and other purchase price adjustments as described in the Unit Purchase Agreement.
There are several principal characteristics of our business that we believe make us a particularly effective competitor in our industry and position us well for future growth. These include:
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- Our major market position;
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- Our modern, highly productive theatre circuit;
-
- Our strong cash flow generation; and
-
- Our proven management team.
Major Market Position. We are one of the world's leading theatrical exhibition companies by having broad major market diversification and leading market share within our markets. As of April 1, 2010, 94% of our screens were in the top 50 Designated Market Areas as defined by Nielsen Media Research ("DMAs") and 79% were in the top 25 DMAs. We operated in 23 of the top 25 DMAs and had the number one or two market share in each of the top 15 DMAs, including New York City, Los Angeles, Chicago, Philadelphia, San Francisco and Boston. In certain of our densely populated urban markets, we believe there is scarcity of attractive retail real estate opportunities, which enhances the strategic value of our existing theatres. We believe that customers in our major markets are more affluent and culturally diverse as compared to those in smaller markets. During fiscal 2010, 59% of all U.S. box office receipts derive from the top 25 DMAs and 75% derive from the top 50 DMAs, our major market presence makes our theatres more highly visible and more important to content providers who rely on our markets for a disproportionate share of box office receipts.
Traditionally, the population densities, affluence and ethnic and cultural diversity of top DMAs have created a greater opportunity to exhibit a broad array of film genres, which we believe drives higher levels of attendance at our theatres as compared to theatres in less densely populated markets. Historically, this has produced the highest per screen and per theatre operating metrics among the group consisting of us and Regal Entertainment Group and Cinemark Holdings, Inc., the companies we view as our peers. We believe our strong presence in major markets positions us well relative to our peer competitors to take advantage of opportunities for incremental revenues associated with operating a digital theatre circuit, such as alternative content, given our patrons' interest in a broader array of content offerings. We also believe the complexity inherent in operating in these major markets is a deterrent to other less sophisticated competitors, protecting our share position in-market.
9
Modern, Highly Productive Theatre Circuit. We are an industry leader in the development and operation of megaplex theatres, typically defined as a theatre having 14 or more screens and offering amenities to enhance the movie-going experience, such as stadium seating providing unobstructed viewing, digital sound, enhanced seat design and a variety of food and beverage offerings. As of April 1, 2010, 3,505, or approximately 78%, of our screens were located in megaplex theatres. Over the past five years we invested approximately $656,374,000 to improve and expand our theatre circuit, contributing to the modern portfolio of theatres we operate today.
We believe the combination of our market and operating strategies enables us to deliver industry-leading theatre level operating metrics. For the fiscal year ended April 1, 2010, our theatre exhibition circuit produced attendance per average theatre of 679,000 (approximately 19% higher than our closest peer competitor) and revenues per average theatre of $8.2 million (approximately 52% higher than our closest peer competitor).
As of April 1, 2010, we had installed 594 digital projectors in our existing theatre base. We intend to continue our rapid deployment of digital projectors through our arrangements with DCIP. We intend to install 1,150 to 1,250 more digital projectors in fiscal 2011. We believe that our theatre circuit will be further enhanced with the installation of digital projection systems in our theatres. We believe operating a digital theatre circuit will provide us with greater flexibility in exhibiting our content, which we expect will enhance our capacity utilization, enable us to achieve higher ticket prices for differentiated content formats such as 3D, and provide incremental revenue from exhibition of alternative content such as live concerts, sporting events, Broadway shows and opera.
We believe our circuit is better positioned than our competitors to benefit from broader and more diverse food and beverage offerings. During fiscal 2010, we introduced proprietary food and beverage offerings that can be deployed across our theatre circuit depending upon the needs and unique circumstances of each theatre. At the lowest capital investment, Concession Freshen engages the traditional guest with better assortment and more appealing signage and merchandising fixtures. Concession Stand of the Future introduces a more efficient transaction-focused post-pay format in addition to significantly expanded stock-keeping units. During the past two fiscal years, we also introduced in-theatre dining concepts featuring Fork & Screen, a casual in-theatre dining and entertainment experience; Cinema Suites, a premium, upscale in-theatre dining and entertainment option and MacGuffins, a bar and lounge area.
Strong Cash Flow Generation. The U.S. theatrical exhibition industry has a long-term history of steady box office growth, even during times of economic downturn. When combined with our major market focus and highly productive theatre assets, we have been able to generate significant and stable cash flow provided by operating activities. For the fiscal year ended April 1, 2010, our net cash provided by operating activities totaled $228,951,000. In future years, we expect to continue to generate cash flow sufficient to allow us to grow our revenues, maintain our facilities, invest in our business and service our debt.
Proven Management Team. Our management team has a unique combination of industry experiences and skill-sets, equipping them to effectively execute our strategies in an increasingly complex business environment. Our CEO's broad experience in a number of Consumer Packaged Goods ("CPG") and entertainment-related businesses expands AMC's growth perspectives well beyond traditional theatrical exhibition and has increased our focus on providing more value to our guests. Recent additions, including a Chief Marketing Officer ("CMO") and heads of Food & Beverage, Programming and Development/Real Estate augment our deep bench of industry experience with additional skill-sets and diverse expertise. The expanded breadth of our management team complements the established team known for operational excellence and a demonstrated history of innovation and industry consolidation.
10
Our strategy is rooted in our mission to drive social relevance by providing our guests with a compelling entertainment experience while at the same time leading our industry in financial and operating metrics. Our strategy is driven by the following key elements:
-
- Optimizing our theatres;
-
- Maximizing guest engagement and loyalty; and
-
- Maximizing operating efficiencies.
Optimize our Theatres. We will continue to broaden our content offerings through the installation of additional IMAX, ETX and 3D systems, present attractive alternative content and enhance our food and beverage offerings.
-
- As of April 1, 2010, we have IMAX systems in place at 81 of our theatres, of which 40 IMAX projection systems were
installed during fiscal 2010. We expect to increase our IMAX screen count to 115 during fiscal year 2012. These IMAX projection systems are slated to be installed in many of our
top-performing locations in major U.S. markets, including New York City, Chicago, Los Angeles, Dallas, Houston, Philadelphia, San Francisco and Washington, D.C., each protected by
geographic exclusivity. We have a leading market share of IMAX MPX digital projection systems, which enables us to capitalize on the growing number of films produced for this large screen format and
the increasing consumer demand for this differentiated movie-going experience. We charge a premium price for the IMAX experience, which produces average weekly box office per print that is 300% over
standard 2D versions of the same movie.
-
- We have plans to install an additional 20 to 25 of our proprietary ETX large screen formats during fiscal 2011. We charge
a premium price for the ETX experience and believe it offers a programming alternative that is complementary to IMAX.
-
- As of April 1, 2010, we operated 475 screens enabled with digital 3D projection systems and target having over
1,500 by the end of fiscal year 2012. Digital technology facilitates the distribution of 3D content, enables alternative content offerings and generates operating efficiencies. We believe the growing
amount of 3D content will continue to drive incremental attendance and revenues. During the past year, 3D versions of a movie have generated approximately 40% more in attendance than standard 2D
versions of the same movie at an additional $1 to $5 more per ticket for a 3D movie than for a 2D movie. Digital technology will also enable us to broaden the entertainment offerings in our theatres
and improve capacity utilization by using screens for the exhibition of alternative content. Additionally, digital technologies will enable us to create further operational and programming
efficiencies in our theatres by making real-time decisions on the number and size of the auditoriums to program with content. Given our major market positions, the overall diversity of our
patron base and our ability to better address customer preferences, we believe digital technologies will provide us with the opportunity for incremental revenues and improved overall operational
efficiency.
-
- We recently implemented initiatives to broaden and enhance our food and beverage offerings:
-
- Expanding the menu of premium food and beverage products to include alcohol, healthy items, made to order, customized
coffee, hot food items and other gourmet products.
-
- Introduced in-theatre dining concepts at three theatres, featuring Fork & Screen, a casual, in-theatre dining and entertainment experience; Cinema Suites, a premium, upscale in-theatre dining and entertainment option; and MacGuffins, a bar and lounge area. AMC Studio 30 in Olathe, Kansas is the first AMC location in the country to feature all three test concepts under one roof.
11
-
- We will evaluate the potential for new theatres and, where appropriate, intend to replace underperforming theatres with new, modern theatres that offer amenities that are consistent with our portfolio. Lastly, we intend to selectively pursue acquisitions where the characteristics of the location, overall market and facilities further enhance the quality of our theatre portfolio. Historically we have demonstrated a successful track record of integrating acquisitions such as Loews and General Cinema. Our acquisition of Loews on January 26, 2006 combined two leading theatrical exhibition companies, each with a long history of operating in the industry, and increased the number of screens we operated by 47%. As a result of the Kerasotes acquisition, we expect our theatre and screen counts to increase by 83 and 812, respectively.
These concepts allow movie-going patrons the unique convenience of combining the out-of-home dining and movie-going entertainment experience in one setting. Enthusiastic guests appreciate the reserved seating and other amenities offered. We have successfully implemented our in-theatre dining concepts to rejuvenate theatres approaching the end of their useful life as traditional movie theatres and in some of our larger theatres to more efficiently leverage their additional capacity. We currently operate three locations offering in-theatre dining and plan to open six more locations during fiscal 2011.
Maximizing Guest Engagement and Loyalty. In addition to differentiating the AMC movie-going experience by deploying new sight and sound formats and food and beverage concepts, we are also focused on creating differentiation through guest marketing. We have had success in the past and intend to generate incremental attendance and revenues in the future by maximizing guest engagement and loyalty through a number of initiatives. Chief among these are:
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- Our frequent moviegoer loyalty program, which already has approximately 1.5 million active members. We are
targeting a re-launch during fiscal 2011 with a new program that is richer, deeper and fee-based.
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- The launch of amctheatres.com and upgraded Interactive Voice Response ("IVR") systems to supplant traditional
communication via newspapers with contemporary engagement platforms that offer comprehensive theatre, show time and movie related information. Additional means of consumer engagement are being
expanded to include email, social networking, and Short Message Service ("SMS") messaging.
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- The addition of music, sports and other special events to transform our buildings into full-fledged
entertainment venues. This growing complement to traditional content has grown to 62 events in fiscal 2010, including the very popular Metropolitan Opera series.
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- Targeting film content to the ethnic/lifestyles within individual theatre trade areas, which enables us to drive incremental traffic and create greater guest engagement. Our circuit-within-a-circuit initiative includes a number of guest profiles, including independent films, Latino, Bollywood, Asian/Korean and Urban.
Maximize Operating Efficiencies. We believe that the size of our circuit, major market concentration and the breadth of our operations will allow us to continue to achieve economies of scale and drive continued improvement in operating margins. Our operating strategies are focused in these areas:
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- Optimizing our pricing model through implementation of value-oriented pricing during periods of low capacity utilization balanced with more aggressive pricing during peak operating periods and for higher perceived value offerings such as 3D, IMAX, reserved seating and in-theatre dining amenities. By building upon our highly productive screens and our ongoing development of premium experiences, we have increased our pricing power in the marketplace.
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- During fiscal 2010, we reorganized our procurement function, bringing greater focus to leveraging our scale to lower our
cost of doing business without sacrificing quality or the important elements of guest satisfaction.
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- During fiscal 2010, we also successfully lowered occupancy costs in many of our facilities by renegotiating rental agreements with landlords, strictly enforcing co-tenancy provisions and effective auditing of common area billings.
Film Licensing
We predominantly license "first-run" motion pictures from distributors owned by major film production companies and from independent distributors. We license films on a film-by-film and theatre-by-theatre basis. We obtain these licenses based on several factors, including number of seats and screens available for a particular picture, revenue potential and the location and condition of our theatres. We pay rental fees on a negotiated basis.
During the period from 1990 to 2009, the annual number of first-run motion pictures released by distributors in the United States ranged from a low of 370 in 1995 to a high of 633 in 2008, according to the Motion Picture Association 2009 Theatrical Market Statistics.
North American film distributors typically establish geographic film licensing zones and generally allocate available film to one theatre within each zone. Film zones generally encompass a radius of three to five miles in metropolitan and suburban markets, depending primarily upon population density. In film zones where we are the sole exhibitor, we obtain film licenses by selecting a film from among those offered and negotiating directly with the distributor. As of April 1, 2010, approximately 88% of our screens in the United States and Canada were located in film licensing zones where we are the sole exhibitor.
Licenses that we enter into typically state that rental fees are based on either aggregate terms established prior to the opening of the picture or on a mutually agreed settlement upon the conclusion of the picture run. Under an aggregate terms formula, we pay the distributor a specified percentage of box office receipts or pay based on a scale of percentages tied to different amounts of box office gross. The settlement process allows for negotiation based upon how a film actually performs.
There are several distributors which provide a substantial portion of quality first-run motion pictures to the exhibition industry. These include Paramount Pictures, Twentieth Century Fox, Warner Bros. Distribution, Buena Vista Pictures (Disney), Sony Pictures Releasing, and Universal Pictures. Films licensed from these distributors accounted for approximately 84% of our U.S. and Canadian admissions revenues during fiscal 2010. Our revenues attributable to individual distributors may vary significantly from year to year depending upon the commercial success of each distributor's motion pictures in any given year. In fiscal 2010, no single distributor accounted for more than 20% of our box office admissions.
Concessions
Concessions sales are our second largest source of revenue after box office admissions. Concessions items include popcorn, soft drinks, candy, hot dogs and other products. Different varieties of candy and soft drinks are offered at our theatres based on preferences in that particular geographic region. We have also implemented "combo-meals" for patrons, which offer a pre-selected assortment of concessions products and offer co-branded and private label products that are unique to us.
Our strategy emphasizes prominent and appealing concessions counters designed for rapid service and efficiency. We design our megaplex theatres to have more concessions capacity to make it easier to serve larger numbers of customers. Strategic placement of large concessions stands within theatres
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heightens their visibility, aids in reducing the length of lines, allows flexibility to introduce new concepts and improves traffic flow around the concessions stands.
We negotiate prices for our concessions products and supplies directly with concessions vendors on a national or regional basis to obtain high volume discounts or bulk rates and marketing incentives.
Our entertainment and dining experience at certain theatres features casual and premium upscale in-theatre dining options as well as bar and lounge areas.
Employees
As of April 1, 2010, we employed approximately 800 full-time and 16,000 part-time employees. Approximately 39% of our U.S. theatre associates were paid the minimum wage.
Fewer than 2% of our U.S. employees, consisting primarily of motion picture projectionists, are represented by a union, the International Alliance of Theatrical Stagehand Employees and Motion Picture Machine Operators (and affiliated local unions). We believe that our relationship with this union is satisfactory. We consider our employee relations to be good.
Theatrical Exhibition Industry and Competition
Theatrical exhibition is the primary initial distribution channel for new motion picture releases, and we believe that the theatrical success of a motion picture is often the most important factor in establishing its value in the other parts of the product life cycle (DVD, cable television and other ancillary markets).
Theatrical exhibition has demonstrated long-term steady growth. U.S. and Canadian box office revenues increased by a 3.8% Compound Annual Growth Rate ("CAGR") over the last 20 years, driven by increases in both ticket prices and attendance. Ticket prices have grown steadily over the past 20 years, growing at a 3.2% CAGR. In calendar 2009, industry box office revenues for the United States and Canada were $10,600,000,000, an increase of 10% from calendar 2008.
The following table represents information about the exhibition industry obtained from the National Association of Theatre Owners ("NATO").
Calendar Year
|
Box Office Revenues (in millions) |
Attendance (in millions) |
Average Ticket Price |
Number of Theatres |
Indoor Screens |
Screens Per Theatre |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2009 |
$ | 10,600 | 1,414 | $ | 7.50 | 5,561 | 38,605 | 6.9 | |||||||||||
2008 |
9,634 | 1,341 | 7.18 | 5,403 | 38,934 | 7.2 | |||||||||||||
2007 |
9,632 | 1,400 | 6.88 | 5,545 | 38,159 | 6.9 | |||||||||||||
2006 |
9,170 | 1,401 | 6.55 | 5,543 | 37,776 | 6.8 | |||||||||||||
2005 |
8,820 | 1,376 | 6.41 | 5,713 | 37,092 | 6.5 |
There are approximately 816 companies competing in the North American theatrical exhibition industry, approximately 442 of which operate four or more screens. Industry participants vary substantially in size, from small independent operators to large international chains. Based on information obtained from Rentrak, we believe that the four largest exhibitors (in terms of box office revenue) generated approximately 54% of the box office revenues in 2009. This statistic is up from 33% in 2000 and is evidence that the theatrical exhibition business in the United States and Canada has been consolidating. According to NATO, average screens per theatre have increased from 6.5 in 2005 to 6.9 in 2009, which we believe is indicative of the industry's development of megaplex theatres.
Our theatres are subject to varying degrees of competition in the geographic areas in which they operate. Competition is often intense with respect to attracting patrons, licensing motion pictures and finding new theatre sites. Where real estate is readily available, there are few barriers preventing
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another company from opening a theatre near one of our theatres, which may adversely affect operations at our theatre.
The theatrical exhibition industry faces competition from other forms of out-of-home entertainment, such as concerts, amusement parks and sporting events, and from other distribution channels for filmed entertainment, such as cable television, pay per view and home video systems, as well as from all other forms of entertainment.
We believe the theatrical exhibition industry is and will continue to be attractive for a number of key reasons, including:
A Highly Popular and Affordable Out-of-Home Entertainment Experience. Going to the movies is one of the most popular and affordable out-of-home entertainment options. In calendar 2009, attendance at indoor movie theatres in United States and Canada was 1,414,000,000. This contrasts to the 119,800,000 combined annual attendance generated by professional baseball, basketball and football over the same time period. The estimated average price of a movie ticket was $7.50 in calendar 2009, considerably less than other out-of-home entertainment alternatives such as concerts and sporting events.
Long History of Steady Growth. The theatrical exhibition industry is a mature business which has, over an extended period, produced steady growth in revenues. The combination of the popularity of movie-going, its steady long-term growth characteristics, industry consolidation that has resulted in more rational capital deployment and the relative maturity of the business makes theatrical exhibition a highly cash flow generative business today. Box office revenues in the United States and Canada have increased at a 3.8% CAGR over the last 20 years, driven by increases in both ticket prices and attendance across multiple economic cycles. During this period, the industry experienced short-term variability in attendance and resulting revenues which we believe were highly correlated to the quality of film product being exhibited. We believe that these long-term trends will continue.
Importance to Content Providers. We believe that the theatrical success of a motion picture is often the key determinant in establishing its value in the other parts of the product life cycle, such as DVD, cable television, merchandising and other ancillary markets. As a result, we believe motion picture studios will continue to work cooperatively with theatrical exhibitors to ensure the continued value of the theatrical window.
Adoption of Digital Technology. The theatrical exhibition industry is in the initial stages of conversion from film-based to digital projection technology. Virtually all filmed entertainment content today can be exhibited digitally. Digital projection results in a premium visual experience for patrons as there is no degradation of image over the life of a film. Digital content also gives the theatre operator greater flexibility in programming content. For example, theatre operators are able to better address capacity utilization and meet demand in their theatres by making real-time decisions on the number and size of auditoriums to program with content. Moreover, digital technology provides theatres with the opportunity for additional revenues through 3D and alternative content offerings. Recent experience with digital has produced increased attendance and average ticket prices. For example, theatres are able to charge $1 to $5 more per ticket for a 3D film than for a standard 2D film. Furthermore, 3D screens have generated approximately 40% more in attendance than standard 2D versions of the same movie. Digital technology also facilitates live and pre-recorded networked and single-site meetings and corporate events in movie theatres and will allow for the distribution of live and pre-recorded entertainment content and the sale of associated sponsorships.
Regulatory Environment
The distribution of motion pictures is, in large part, regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. The consent decrees resulting from one of those cases, to which we were not a party, have a material impact on the industry and us. Those consent
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decrees bind certain major motion picture distributors and require the motion pictures of such distributors to be offered and licensed to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, we cannot assure ourselves of a supply of motion pictures by entering into long-term arrangements with major distributors, but must compete for our licenses on a film-by-film and theatre-by-theatre basis.
Our theatres must comply with Title III of the Americans with Disabilities Act of 1990 (the "ADA"). Compliance with the ADA requires that public accommodations "reasonably accommodate" individuals with disabilities and that new construction or alterations made to "commercial facilities" conform to accessibility guidelines unless "structurally impracticable" for new construction or technically infeasible for alterations. Non-compliance with the ADA could result in the imposition of injunctive relief, fines, and awards of damages to private litigants or additional capital expenditures to remedy such noncompliance. Although we believe that our theatres are in substantial compliance with the ADA, in January 1999 the Civil Rights Division of the Department of Justice, or the Department, filed suit against us alleging that certain of our theatres with stadium-style seating violate the ADA. In separate rulings in 2002 and 2003, the court ruled against us in the "line of sight" and the "non-line of sight" aspects of this case. In 2003, the court entered a consent order and final judgment about the non-line of sight aspects of this case. On December 5, 2008, the Ninth Circuit Court of Appeals reversed the trial court as to the appropriate remedy and remanded the case back to the trial court for findings consistent with its decision. AMCE and the Department are negotiating the extent of betterments related to the remaining remedies required for line-of-sight violations consistent with the Ninth Circuit's decision. Absent settlement, the case will be tried in February 2011. See Part I Item 3Legal Proceedings of this Annual Report on Form 10-K.
As an employer covered by the ADA, we must make reasonable accommodations to the limitations of employees and qualified applicants with disabilities, provided that such reasonable accommodations do not pose an undue hardship on the operation of our business. In addition, many of our employees are covered by various government employment regulations, including minimum wage, overtime and working conditions regulations.
Our operations also are subject to federal, state and local laws regulating such matters as construction, renovation and operation of theatres as well as wages and working conditions, citizenship, health and sanitation requirements and licensing. We believe our theatres are in material compliance with such requirements.
We also own and operate theatres and other properties which may be subject to federal, state and local laws and regulations relating to environmental protection. Certain of these laws and regulations may impose joint and several liability on certain statutory classes of persons for the costs of investigation or remediation of contamination, regardless of fault or the legality of original disposal. We believe our theatres are in material compliance with such requirements.
Seasonality
Our revenues are dependent upon the timing of motion picture releases by distributors. The most marketable motion pictures are usually released during the summer and the year-end holiday seasons. Therefore, our business is highly seasonal, with higher attendance and revenues generally occurring during the summer months and holiday seasons. Our results of operations may vary significantly from quarter to quarter.
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(d) Financial Information About Geographic Areas
For information about the geographic areas in which we operate, see Note 15Operating Segment to the Consolidated Financial Statements under Part II Item 8 of this Annual Report on Form 10-K. During fiscal 2010, revenues from our theatre operations outside the United States accounted for 4% of our total revenues. There are significant differences between the theatrical exhibition industry in the United States and in these international markets.
(e) Available Information.
We make available on our web site (www.amctheatres.com) under "Investor ResourcesSEC Filings" free of charge, Holdings' and AMCE's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission. In addition, the public may read and copy any materials that we file with the Securities and Exchange Commission at the Securities and Exchange Commission Public Reference Room at 100 F Street, NW, Washington, DC 20549. The public may obtain information about the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330.
Our substantial debt could adversely affect our operations and prevent us from satisfying those debt obligations.
We have a significant amount of debt. As of April 1, 2010, we had $2,130,935,000 of outstanding indebtedness. As of April 1, 2010, our subsidiaries had approximately $3,883,632,000 of undiscounted rental payments under operating leases (with initial base terms of between 15 and 20 years).
The amount of our indebtedness and lease and other financial obligations could have important consequences to you. For example, it could:
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- increase our vulnerability to general adverse economic and industry conditions;
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- limit our ability to obtain additional financing in the future for working capital, capital expenditures, dividend
payments, acquisitions, general corporate purposes or other purposes;
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- require us to dedicate a substantial portion of our cash flow from operations to the payment of lease rentals and
principal and interest on our indebtedness, thereby reducing the funds available to us for operations and any future business opportunities;
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- limit our planning flexibility for, or ability to react to, changes in our business and the industry; and
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- place us at a competitive disadvantage with competitors who may have less indebtedness and other obligations or greater access to financing.
If we fail to make any required payment under our senior secured credit facility or to comply with any of the financial and operating covenants contained therein, we would be in default. Lenders under our senior secured credit facility could then vote to accelerate the maturity of the indebtedness under the senior secured credit facility and foreclose upon the stock and personal property of our subsidiaries that is pledged to secure the senior secured credit facility. Other creditors might then accelerate other indebtedness. If the lenders under the senior secured credit facility accelerate the maturity of the indebtedness thereunder, we might not have sufficient assets to satisfy our obligations under the senior
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secured credit facility or our other indebtedness. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of AMC EntertainmentLiquidity and Capital Resources."
Our indebtedness under our senior secured credit facility bears interest at rates that fluctuate with changes in certain prevailing interest rates (although, subject to certain conditions, such rates may be fixed for certain periods). If interest rates increase, we may be unable to meet our debt service obligations under our senior secured credit facility and other indebtedness.
We have had significant financial losses in recent years.
Prior to fiscal 2007, AMC Entertainment had reported net losses in each of the last nine fiscal years totaling approximately $510,088,000. For fiscal 2007 and 2008, AMCE reported net earnings of $134,079,000 and $43,445,000, respectively. AMCE reported a net loss of $81,172,000 in fiscal 2009 and net earnings of $69,790,000 in fiscal 2010. If we experience losses in the future, we may be unable to meet our payment obligations while attempting to expand our theatre circuit and withstand competitive pressures or adverse economic conditions.
We face significant competition for new theatre sites, and we may not be able to build or acquire theatres on terms favorable to us.
We anticipate significant competition from other exhibition companies and financial buyers when trying to acquire theatres, and there can be no assurance that we will be able to acquire such theatres at reasonable prices or on favorable terms. Moreover, some of these possible buyers may be stronger financially than we are. In addition, given our size and market share, as well as our recent experiences with the Antitrust Division of the United States Department of Justice in connection with the acquisition of Kerasotes and prior acquisitions, we may be required to dispose of theatres in connection with future acquisitions that we make. As a result of the foregoing, we may not succeed in acquiring theatres or may have to pay more than we would prefer to make an acquisition.
Acquiring or expanding existing circuits and theatres may require additional financing, and we cannot be certain that we will be able to obtain new financing on favorable terms, or at all.
Our net capital expenditures aggregated approximately $97,011,000 for fiscal 2010. We estimate that our planned capital expenditures will be between $120,000,000 and $150,000,000 in fiscal 2011. Actual capital expenditures in fiscal 2011 may differ materially from our estimates. We may have to seek additional financing or issue additional securities to fully implement our growth strategy. We cannot be certain that we will be able to obtain new financing on favorable terms, or at all. In addition, covenants under our existing indebtedness limit our ability to incur additional indebtedness, and the performance of any additional theatres may not be sufficient to service the related indebtedness that we are permitted to incur.
We may be reviewed by antitrust authorities in connection with acquisition opportunities that would increase our number of theatres in markets where we have a leading market share.
Given our size and market share, pursuit of acquisition opportunities that would increase the number of our theatres in markets where we have a leading market share would likely result in significant review by the Antitrust Division of the United States Department of Justice, and we may be required to dispose of theatres in order to complete such acquisition opportunities. For example, in connection with the acquisition of Kerasotes, we are required to dispose of 11 theatres located in various markets across the United States, including Chicago, Denver and Indianapolis. As a result, we may not be able to succeed in acquiring other exhibition companies or we may have to dispose of a significant number of theatres in key markets in order to complete such acquisitions.
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The agreements governing our indebtedness contain covenants that may limit our ability to take advantage of certain business opportunities advantageous to us.
The agreements governing our indebtedness contain various covenants that limit our ability to, among other things:
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- incur or guarantee additional indebtedness;
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- pay dividends or make other distributions to our shareholders;
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- make restricted payments;
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- incur liens;
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- engage in transactions with affiliates; and
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- enter into business combinations.
These restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand economic downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise.
Although the indentures for our notes contain a fixed charge coverage test that limits our ability to incur indebtedness, this limitation is subject to a number of significant exceptions and qualifications. Moreover, the indentures do not impose any limitation on our incurrence of capital or finance lease obligations or liabilities that are not considered "Indebtedness" under the indentures (such as operating leases), nor do they impose any limitation on the amount of liabilities incurred by subsidiaries, if any, that might be designated as "unrestricted subsidiaries," which are subsidiaries that we designate, that are not subject to the restrictive covenants contained in the indentures governing our notes. Furthermore, there are no restrictions in the indentures on our ability to invest in other entities (including unaffiliated entities) and no restrictions on the ability of our subsidiaries to enter into agreements restricting their ability to pay dividends or otherwise transfer funds to us. Also, although the indentures limit our ability to make restricted payments, these restrictions are subject to significant exceptions and qualifications.
We may not generate sufficient cash flow from our theatre acquisitions to service our indebtedness.
In any acquisition, we expect to benefit from cost savings through, for example, the reduction of overhead and theatre level costs, and from revenue enhancements resulting from the acquisition. However, there can be no assurance that we will be able to generate sufficient cash flow from these acquisitions to service any indebtedness incurred to finance such acquisitions or realize any other anticipated benefits. Nor can there be any assurance that our profitability will be improved by any one or more acquisitions. Any acquisition may involve operating risks, such as:
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- the difficulty of assimilating and integrating the acquired operations and personnel into our current business;
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- the potential disruption of our ongoing business;
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- the diversion of management's attention and other resources;
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- the possible inability of management to maintain uniform standards, controls, procedures and policies;
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- the risks of entering markets in which we have little or no experience;
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- the potential impairment of relationships with employees;
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- the possibility that any liabilities we may incur or assume may prove to be more burdensome than anticipated; and
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- the possibility that the acquired theatres do not perform as expected.
If our cash flows prove inadequate to service our debt and provide for our other obligations, we may be required to refinance all or a portion of our existing debt or future debt at terms unfavorable to us.
Our ability to make payments on and refinance our debt and other financial obligations and to fund our capital expenditures and acquisitions will depend on our ability to generate substantial operating cash flow. This will depend on our future performance, which will be subject to prevailing economic conditions and to financial, business and other factors beyond our control. As of August 16, 2007, Holdings began paying cash interest on its 12% senior discount notes due 2014 and made its first semi-annual cash interest payment on February 15, 2008. Holdings' ability to service the 12% senior discount notes due 2014 is subject to the restrictions on distributions from AMCE contained in our senior secured credit facility and the indentures governing AMCE's debt securities. The maximum amount AMCE was permitted to distribute to Holdings in compliance with its senior secured credit facility and the indentures governing AMCE's debt securities was approximately $309,752,000 as of April 1, 2010.
In addition, our notes require us to repay or refinance those notes when they come due. If our cash flows were to prove inadequate to meet our debt service, rental and other obligations in the future, we may be required to refinance all or a portion of our existing or future debt, on or before maturity, to sell assets or to obtain additional financing. We cannot assure you that we will be able to refinance any of our indebtedness, including our senior secured credit facility, sell any such assets or obtain additional financing on commercially reasonable terms or at all.
The terms of the agreements governing our indebtedness restrict, but do not prohibit us from incurring additional indebtedness. If we are in compliance with the financial covenants set forth in the senior secured credit facility and our other outstanding debt instruments, we may be able to incur substantial additional indebtedness. If we incur additional indebtedness, the related risks that we face may intensify.
Our investment in and revenues from NCM may be negatively impacted by the competitive environment in which NCM operates.
We have maintained an investment in NCM. NCM's in-theatre advertising operations compete with other cinema advertising companies and other advertising mediums including, most notably, television, newspaper, radio and the Internet. There can be no guarantee that in-theatre advertising will continue to attract major advertisers or that NCM's in-theatre advertising format will be favorably received by the theatre-going public. If NCM is unable to generate expected sales of advertising, it may not maintain the level of profitability we hope to achieve, its results of operations and cash flows may be adversely affected and our investment in and revenues and dividends from NCM may be adversely impacted.
We may suffer future impairment losses and lease termination charges.
The opening of large megaplexes by us and certain of our competitors has drawn audiences away from some of our older, multiplex theatres. In addition, demographic changes and competitive pressures have caused some of our theatres to become unprofitable. As a result, we may have to close certain theatres or recognize impairment losses related to the decrease in value of particular theatres. We review long-lived assets, including intangibles, for impairment as part of our annual budgeting process and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We recognized non-cash impairment losses in 1996 and in each
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fiscal year thereafter except for 2005. AMC Entertainment's impairment losses from continuing operations over this period aggregated to $285,044,000. Beginning fiscal 1999 through April 1, 2010, AMC Entertainment also incurred theatre and other closure expenses, including theatre lease termination charges aggregating approximately $56,217,000. Deterioration in the performance of our theatres could require us to recognize additional impairment losses and close additional theatres, which could have an adverse effect on the results of our operations.
Our international and Canadian operations are subject to fluctuating currency values.
As of April 1, 2010, we owned, operated or held interests in megaplexes in Canada, China (Hong Kong), France and the United Kingdom. Because the results of operations and the financial position of our foreign operations are reported in their respective local currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements, our financial results are impacted by currency fluctuations between the dollar and those local currencies. Revenues from our theatre operations outside the United States accounted for 4% of our total revenues during the 52 weeks ended April 1, 2010. As a result of our international operations, we have risks from fluctuating currency values. As of April 1, 2010, a 10% fluctuation in the value of the U.S. dollar against all foreign currencies of countries where we currently operate theatres would either increase or decrease loss before income taxes and accumulated other comprehensive loss by approximately $722,000 and $8,345,000, respectively. We do not currently hedge against foreign currency exchange rate risk.
We must comply with the ADA, which could entail significant cost.
Our theatres must comply with Title III of the Americans with Disabilities Act of 1990, or ADA. Compliance with the ADA requires that public accommodations "reasonably accommodate" individuals with disabilities and that new construction or alterations made to "commercial facilities" conform to accessibility guidelines unless "structurally impracticable" for new construction or technically infeasible for alterations. Non-compliance with the ADA could result in the imposition of injunctive relief, fines, and an award of damages to private litigants or additional capital expenditures to remedy such noncompliance.
On January 29, 1999, the Civil Rights Division of the Department of Justice, or the Department, filed suit alleging that AMC Entertainment's stadium-style theatres violated the ADA and related regulations. On December 5, 2003, the trial court entered a consent order and final judgment on non-line-of-sight issues under which AMC Entertainment agreed to remedy certain violations at its stadium-style theatres and at certain theatres it may open in the future. Currently we estimate that betterments related to non-line of sight remedies will be required at approximately 140 stadium-style theatres. AMC Entertainment estimates that the total cost of these betterments will be approximately $54,000,000 and through April 1, 2010 AMCE has incurred approximately $33,355,000 of these costs. See Part I Item 3Legal Proceedings of this Annual Report on Form 10-K.
We are party to significant litigation.
We are subject to a number of legal proceedings and claims that arise in the ordinary course of our business. We cannot be assured that we will succeed in defending any claims, that judgments will not be entered against us with respect to any litigation or that reserves we may set aside will be adequate to cover any such judgments. If any of these actions or proceedings against us is successful, we may be subject to significant damages awards. For a description of our legal proceedings, see Part I Item 3Legal Proceedings of this Annual Report on Form 10-K.
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We may be subject to liability under environmental laws and regulations.
We own and operate facilities throughout the United States and manage or own facilities in several foreign countries and are subject to the environmental laws and regulations of those jurisdictions, particularly laws governing the cleanup of hazardous materials and the management of properties. We might in the future be required to participate in the cleanup of a property that we own or lease, or at which we have been alleged to have disposed of hazardous materials from one of our facilities. In certain circumstances, we might be solely responsible for any such liability under environmental laws, and such claims could be material.
We may not be able to generate additional ancillary revenues.
We intend to continue to pursue ancillary revenue opportunities such as advertising, promotions and alternative uses of our theatres during non-peak hours. Our ability to achieve our business objectives may depend in part on our success in increasing these revenue streams. Some of our U.S. and Canadian competitors have stated that they intend to make significant capital investments in digital advertising delivery, and the success of this delivery system could make it more difficult for us to compete for advertising revenue. In addition, in March 2005 we contributed our cinema screen advertising business to NCM. As such, although we retain board seats and an ownership interest in NCM, we do not control this business, and therefore do not control our revenues attributable to cinema screen advertising. We cannot assure you that we will be able to effectively generate additional ancillary revenue and our inability to do so could have an adverse effect on our business and results of operations.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In the past, we have identified a material weakness in our internal control over financial reporting and concluded that our disclosure controls and procedures were ineffective. In addition, we may in the future discover areas of our internal controls that need improvement or that constitute material weaknesses. A material weakness is a control deficiency or combination of control deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. Any failure to remediate any future material weaknesses in our internal control over financial reporting or to implement and maintain effective internal controls, or difficulties encountered in their implementation, could cause us to fail to timely meet our reporting obligations, result in material misstatements in our financial statements or could result in defaults under our senior secured credit facility, the indentures governing our debt securities or under any other debt instruments we may enter into in the future. Deficiencies in our internal controls could also cause investors to lose confidence in our reported financial information.
We depend on key personnel for our current and future performance.
Our current and future performance depends to a significant degree upon the retention of our senior management team and other key personnel. The loss or unavailability to us of any member of our senior management team or a key employee could have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that we would be able to locate or employ qualified replacements for senior management or key employees on acceptable terms.
22
Risks Related to Our Industry
We have no control over distributors of the films and our business may be adversely affected if our access to motion pictures is limited or delayed.
We rely on distributors of motion pictures, over whom we have no control, for the films that we exhibit. Major motion picture distributors are required by law to offer and license film to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, we cannot assure ourselves of a supply of motion pictures by entering into long-term arrangements with major distributors, but must compete for our licenses on a film-by-film and theatre-by-theatre basis. Our business depends on maintaining good relations with these distributors, as this affects our ability to negotiate commercially favorable licensing terms for first-run films or to obtain licenses at all. Our business may be adversely affected if our access to motion pictures is limited or delayed because of deterioration in our relationships with one or more distributors or for some other reason. To the extent that we are unable to license a popular film for exhibition in our theatres, our operating results may be adversely affected.
We depend on motion picture production and performance.
Our ability to operate successfully depends upon the availability, diversity and appeal of motion pictures, our ability to license motion pictures and the performance of such motion pictures in our markets. We license first-run motion pictures, the success of which has increasingly depended on the marketing efforts of the major motion picture studios. Poor performance of, or any disruption in the production of these motion pictures (including by reason of a strike or lack of adequate financing), or a reduction in the marketing efforts of the major motion picture studios, could hurt our business and results of operations. In addition, a change in the type and breadth of movies offered by motion picture studios may adversely affect the demographic base of moviegoers.
We are subject, at times, to intense competition.
Our theatres are subject to varying degrees of competition in the geographic areas in which we operate. Competitors may be national circuits, regional circuits or smaller independent exhibitors. Competition among theatre exhibition companies is often intense with respect to the following factors:
-
- Attracting patrons. The competition for patrons is dependent upon factors such as the availability of popular motion
pictures, the location and number of theatres and screens in a market, the comfort and quality of the theatres and pricing. Many of our competitors have sought to increase the number of screens that
they operate. Competitors have built or may be planning to build theatres in certain areas where we operate, which could result in excess capacity and increased competition for patrons.
-
- Licensing motion pictures. We believe that the principal competitive factors with respect to film licensing include
licensing terms, number of seats and screens available for a particular picture, revenue potential and the location and condition of an exhibitor's theatres.
-
- Low barriers to entry. We must compete with exhibitors and others in our efforts to locate and acquire attractive sites for our theatres. In areas where real estate is readily available, there are few barriers to entry that prevent a competing exhibitor from opening a theatre near one of our theatres.
The theatrical exhibition industry also faces competition from other forms of out-of-home entertainment, such as concerts, amusement parks and sporting events and from other distribution channels for filmed entertainment, such as cable television, pay per view and home video systems and from other forms of in-home entertainment.
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Industry-wide screen growth has affected and may continue to affect the performance of some of our theatres.
In recent years, theatrical exhibition companies have emphasized the development of large megaplexes, some of which have as many as 30 screens in a single theatre. The industry-wide strategy of aggressively building megaplexes generated significant competition and rendered many older, multiplex theatres obsolete more rapidly than expected. Many of these theatres are under long-term lease commitments that make closing them financially burdensome, and some companies have elected to continue operating them notwithstanding their lack of profitability. In other instances, because theatres are typically limited use design facilities, or for other reasons, landlords have been willing to make rent concessions to keep them open. In recent years many older theatres that had closed are being reopened by small theatre operators and in some instances by sole proprietors that are able to negotiate significant rent and other concessions from landlords. As a result, there has been growth in the number of screens in the U.S. and Canadian exhibition industry from 2005 to 2008. This has affected and may continue to affect the performance of some of our theatres. The number of screens in the U.S. and Canadian exhibition industry slightly declined from 2008 to 2009.
An increase in the use of alternative film delivery methods or other forms of entertainment may drive down our attendance and limit our ticket prices.
We compete with other film delivery methods, including network, syndicated cable and satellite television, DVDs and video cassettes, as well as video-on-demand, pay-per-view services and downloads via the Internet. We also compete for the public's leisure time and disposable income with other forms of entertainment, including sporting events, amusement parks, live music concerts, live theatre and restaurants. An increase in the popularity of these alternative film delivery methods and other forms of entertainment could reduce attendance at our theatres, limit the prices we can charge for admission and materially adversely affect our business and results of operations.
Our results of operations may be impacted by shrinking video release windows.
Over the last decade, the average video release window, which represents the time that elapses from the date of a film's theatrical release to the date a film is available on DVD, an important downstream market, has decreased from approximately six months to approximately three to four months. If patrons choose to wait for a DVD release rather than attend a theatre for viewing the film, it may adversely impact our business and results of operations, financial condition and cash flows. Film studios are currently considering a premium video on demand product which could also cause the release window to shrink further. We cannot assure you that this release window, which is determined by the film studios, will not shrink further or be eliminated altogether, which could have an adverse impact on our business and results of operations.
Development of digital technology may increase our capital expenses.
The industry is in the process of converting film-based media to digital-based media. We, along with some of our competitors, have commenced a roll-out of digital equipment for exhibiting feature films and plan to continue the roll-out through our joint venture DCIP. However, significant obstacles exist that impact such a roll-out plan, including the cost of digital projectors, and the supply of projectors by manufacturers. During fiscal 2010, DCIP completed its formation and $660 million funding to facilitate the financing and deployment of digital technology in our theatres. We cannot assure you that DCIP will be able to obtain sufficient additional financing to be able to purchase and lease to us the number of digital projectors ultimately needed for our roll-out or that the manufacturers will be able to supply the volume of projectors needed for our roll-out. As a result, our roll-out of digital equipment could be delayed or not completed at all.
24
General political, social and economic conditions can reduce our attendance.
Our success depends on general political, social and economic conditions and the willingness of consumers to spend money at movie theatres. If going to motion pictures becomes less popular or consumers spend less on concessions, which accounted for 27% of our revenues in fiscal 2010, our operations could be adversely affected. In addition, our operations could be adversely affected if consumers' discretionary income falls as a result of an economic downturn. Political events, such as terrorist attacks, could cause people to avoid our theatres or other public places where large crowds are in attendance.
Item 1B. Unresolved Staff Comments.
Not applicable.
The following table sets forth the general character and ownership classification of our theatre circuit, excluding unconsolidated joint ventures and managed theatres, as of April 1, 2010:
Property Holding Classification
|
Theatres | Screens | ||||||
---|---|---|---|---|---|---|---|---|
Owned |
11 | 109 | ||||||
Leased pursuant to ground leases |
7 | 87 | ||||||
Leased pursuant to building leases |
271 | 4,234 | ||||||
Total |
289 | 4,430 | ||||||
Our theatre leases generally have initial terms ranging from 15 to 20 years, with options to extend the lease for up to 20 additional years. The leases typically require escalating minimum annual rent payments and additional rent payments based on a percentage of the leased theatre's revenue above a base amount and require us to pay for property taxes, maintenance, insurance and certain other property-related expenses. In some instances our escalating minimum annual rent payments are contingent upon increases in the consumer price index. In some cases, our rights as tenant are subject and subordinate to the mortgage loans of lenders to our lessors, so that if a mortgage were to be foreclosed, we could lose our lease. Historically, this has never occurred.
We lease our corporate headquarters in Kansas City, Missouri.
Currently, the majority of the concessions, projection, seating and other equipment required for each of our theatres are owned. In the future we expect the majority of our digital projection equipment will be leased from DCIP.
The Company, in the normal course of business, is party to various legal actions. Except as described below, management believes that the potential exposure, if any, from such matters would not have a material adverse effect on the financial condition, cash flows or results of operations of the Company.
United States of America v. AMC Entertainment Inc. and American Multi Cinema, Inc. (No. 99 01034 FMC (SHx), filed in the U.S. District Court for the Central District of California). On January 29, 1999, the Department filed suit alleging that AMCE's stadium-style theatres violated the ADA and related regulations. The Department alleged that AMCE had failed to provide persons in wheelchairs seating arrangements with lines-of-sight comparable to the general public. The Department alleged various non-line-of-sight violations as well. The Department sought declaratory and injunctive relief
25
regarding existing and future theatres with stadium-style seating, compensatory damages in the approximate amount of $75,000 and a civil penalty of $110,000.
As to line-of-sight matters, the trial court entered summary judgment in favor of the Department as to both liability and as to the appropriate remedy. On December 5, 2008, the Ninth Circuit Court of Appeals reversed the trial court as to the appropriate remedy and remanded the case back to the trial court for findings consistent with its decision. AMCE and the Department are negotiating the extent of betterments related to the remaining remedies required for line-of-sight violations consistent with the Ninth Circuit's decision. The improvements will likely be made over a five-year term. Absent settlement, the case will be tried in February 2011. AMCE has recorded a liability of approximately $349,000 for estimated fines related to this matter.
As to the non-line-of-sight aspects of the case, on January 21, 2003, the trial court entered summary judgment in favor of the Department on matters such as parking areas, signage, ramps, location of toilets, counter heights, ramp slopes, companion seating and the location and size of handrails. On December 5, 2003, the trial court entered a consent order and final judgment on non-line-of-sight issues under which AMCE agreed to remedy certain violations at its stadium-style theatres and at certain theatres it may open in the future. Currently AMCE estimates that these betterments will be required at approximately 140 stadium-style theatres. AMCE estimates that the total cost of these betterments will be approximately $54,000,000, and through April 1, 2010 AMCE has incurred approximately $33,355,000 of these costs. The estimate is based on actual costs incurred on remediation work completed to date. The actual costs of betterments may vary based on the results of surveys of the remaining theatres.
Michael Bateman v. American Multi-Cinema, Inc. (No. CV07-00171). In January 2007, a class action complaint was filed against AMC in the Central District of the United States District Court of California (the "District Court") alleging violations of the Fair and Accurate Credit Transactions Act ("FACTA"). FACTA provides in part that neither expiration dates nor more than the last five numbers of a credit or debit card may be printed on receipts given to customers. FACTA imposes significant penalties upon violators where the violation is deemed to have been willful. Otherwise damages are limited to actual losses incurred by the card holder. On October 24, 2008, the District Court denied plaintiff's renewed motion for class certification. Plaintiff has appealed this decision to the Ninth Circuit Court of Appeals and the case is stayed pending this appeal.
On May 14, 2009, Harout Jarchafjian filed a similar lawsuit alleging that AMC willfully violated FACTA and seeking statutory damages, but without alleging any actual injury (Jarchafjian v. American Multi-Cinema, Inc. (C.D. Cal. Case No. CV09-03434). The Jarchafjian case has been deemed related to the Bateman case and is stayed pending a Ninth Circuit decision in the Bateman case. The Company believes the plaintiff's allegations in both these cases, particularly those asserting AMC's willfulness, are without merit.
Union Sponsored Pension Plan. On November 7, 2008, the Company received notice of a written demand for payment of a partial withdrawal liability assessment from a collectively bargained multiemployer pension plan that covers certain of its unionized theatre employees. Based on a payment schedule that the Company received from this plan in December 2008, the Company began making quarterly payments on January 1, 2009 related to the $5,279,000 in partial withdrawal liability. In the second quarter of fiscal 2010, the Company made a complete withdrawal from the plan which triggered an additional liability of $1,422,000 which was assessed by the plan on April 19, 2010. However, the Company also estimates that approximately $2,839,000 of the total liability was discharged in bankruptcy by companies it acquired. As of April 1, 2010, the Company has recorded a liability related to this matter in the amount of $4,016,000 and has made contributions including interest charges of approximately $2,905,000. The final withdrawal liability amount may be adjusted based on a legal review of the plan's assessment, the Company's records and ensuing discussions with the plan's trustees.
26
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common equity consists of Common Stock. There is currently no established public trading market for our Common Stock.
Common Stock
On May 7, 2010, there was one stockholder of record of our Common Stock, AMC Entertainment Holdings, Inc.
During April and May of 2009, Holdings made dividend payments to its stockholder, Parent, totaling $300,000,000, which were treated as a reduction of additional paid-in capital. Parent made payments to purchase term loans and reduced the principal balance of its term loan facility from $466,936,000 to $193,290,000 with a portion of the dividend proceeds.
During September of 2009 and March of 2010, Holdings used cash received from AMCE to pay a dividend distribution to Parent in an aggregate amount of $723,000 and $158,000, respectively. Parent used the available funds to pay corporate overhead expenses incurred in the ordinary course of business.
Issuer Purchase of Equity Securities
There were no repurchases of Holding's Common Stock during the thirteen weeks ended April 1, 2010.
27
Item 6. Selected Financial Data.
|
Years Ended(1)(3) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
52 Weeks Ended March 29, 2007 |
52 Weeks Ended March 30, 2006(4) |
|||||||||||||
|
(in thousands, except operating data) |
|||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||
Revenues: |
||||||||||||||||||
Admissions |
$ | 1,711,853 | $ | 1,580,328 | $ | 1,615,606 | $ | 1,576,924 | $ | 1,125,243 | ||||||||
Concessions |
646,716 | 626,251 | 648,330 | 631,924 | 448,086 | |||||||||||||
Other revenue |
59,170 | 58,908 | 69,108 | 94,374 | 90,631 | |||||||||||||
Total revenues |
2,417,739 | 2,265,487 | 2,333,044 | 2,303,222 | 1,663,960 | |||||||||||||
Costs and Expenses: |
||||||||||||||||||
Film exhibition costs |
928,632 | 842,656 | 860,241 | 838,386 | 604,393 | |||||||||||||
Concession costs |
72,854 | 67,779 | 69,597 | 66,614 | 48,845 | |||||||||||||
Operating expense |
610,774 | 576,022 | 572,740 | 564,206 | 436,028 | |||||||||||||
Rent |
440,664 | 448,803 | 439,389 | 428,044 | 326,627 | |||||||||||||
General and administrative: |
||||||||||||||||||
Merger, acquisition and transactions costs |
2,383 | 652 | 6,372 | 12,447 | 12,523 | |||||||||||||
Management fee |
5,000 | 5,000 | 5,000 | 5,000 | 2,000 | |||||||||||||
Other |
57,964 | 53,747 | 39,177 | 45,860 | 38,296 | |||||||||||||
Restructuring charge |
| | | | 3,980 | |||||||||||||
Depreciation and amortization |
188,342 | 201,413 | 222,111 | 228,437 | 158,098 | |||||||||||||
Impairment of long-lived assets |
3,765 | 73,547 | 8,933 | 10,686 | 11,974 | |||||||||||||
Total costs and expenses |
2,310,378 | 2,269,619 | 2,223,560 | 2,199,680 | 1,642,764 | |||||||||||||
Other income |
(2,559 | ) | (14,139 | ) | (12,932 | ) | (10,267 | ) | (9,818 | ) | ||||||||
Interest expense: |
||||||||||||||||||
Corporate borrowings |
156,420 | 145,657 | 160,902 | 214,539 | 136,932 | |||||||||||||
Capital and financing lease obligations |
5,652 | 5,990 | 6,505 | 4,669 | 3,937 | |||||||||||||
Equity in (earnings) losses of non-consolidated entities(7) |
(30,300 | ) | (24,823 | ) | (43,019 | ) | (233,704 | ) | 7,807 | |||||||||
Investment income(8) |
(240 | ) | (1,731 | ) | (23,923 | ) | (17,594 | ) | (3,333 | ) | ||||||||
Earnings (loss) from continuing operations before income taxes |
(21,612 | ) | (115,086 | ) | 21,951 | 145,899 | (114,329 | ) | ||||||||||
Income tax provision (benefit) |
(68,800 | ) | 5,800 | 1,020 | 28,246 | 70,660 | ||||||||||||
Earnings (loss) from continuing operation |
47,188 | (120,886 | ) | 20,931 | 117,653 | (184,989 | ) | |||||||||||
Earnings (loss) from discontinued operations, net of income tax provision(2) |
(7,534 | ) | 9,728 | 1,802 | (746 | ) | (31,234 | ) | ||||||||||
Net earnings (loss) |
$ | 39,654 | $ | (111,158 | ) | $ | 22,733 | $ | 116,907 | $ | (216,223 | ) | ||||||
Balance Sheet Data (at period end): |
||||||||||||||||||
Cash and equivalents |
$ | 497,948 | $ | 536,580 | $ | 108,717 | $ | 319,533 | $ | 232,366 | ||||||||
Corporate borrowings |
2,073,649 | 1,928,736 | 1,856,467 | 1,864,670 | 2,455,686 | |||||||||||||
Other long-term liabilities |
309,591 | 308,703 | 350,498 | 373,943 | 395,458 | |||||||||||||
Capital and financing lease obligations |
57,286 | 60,709 | 69,983 | 53,125 | 68,130 | |||||||||||||
Stockholder's equity |
546,098 | 826,178 | 917,416 | 1,167,053 | 1,042,642 | |||||||||||||
Total assets |
3,683,204 | 3,756,741 | 3,879,007 | 4,118,149 | 4,407,351 | |||||||||||||
Other Data: |
||||||||||||||||||
Net cash provided by operating activities(6) |
$ | 228,951 | $ | 168,096 | $ | 201,676 | $ | 417,870 | $ | 25,694 | ||||||||
Capital expenditures |
(97,011 | ) | (121,456 | ) | (171,100 | ) | (142,969 | ) | (123,838 | ) | ||||||||
Proceeds from sale/leasebacks |
6,570 | | | | 35,010 | |||||||||||||
Screen additions |
6 | 83 | 136 | 107 | 106 | |||||||||||||
Screen acquisitions |
| | | 32 | 1,363 | |||||||||||||
Screen dispositions |
105 | 77 | 196 | 243 | 60 | |||||||||||||
Average screenscontinuing operations(5) |
4,485 | 4,545 | 4,561 | 4,627 | 3,583 | |||||||||||||
Number of screens operated |
4,513 | 4,612 | 4,606 | 4,666 | 4,770 | |||||||||||||
Number of theatres operated |
297 | 307 | 309 | 318 | 335 | |||||||||||||
Screens per theatre |
15.2 | 15.0 | 14.9 | 14.7 | 14.2 | |||||||||||||
Attendance (in thousands)continuing operations(5) |
200,285 | 196,184 | 207,603 | 213,041 | 161,867 |
- (1)
- Cash dividends declared on common stock for fiscal 2010, 2009 and 2008 were $300,881,000, $3,349,000 and $270,588,000, respectively. There were no other cash dividends declared on common stock.
28
- (2)
- All
fiscal years presented includes earnings and losses from discontinued operations related to 44 theatres in Mexico that were sold during fiscal 2009.
Both fiscal 2007 and 2006 includes losses from discontinued operations related to five theatres in Japan that were sold during fiscal 2006 and five theatres in Iberia that were sold during fiscal
2007.
- (3)
- Fiscal
2008 includes 53 weeks. All other years have 52 weeks.
- (4)
- We
acquired Loews Cineplex Entertainment Corporation on January 26, 2006, which significantly increased our size. In the Loews acquisition we
acquired 112 theatres with 1,308 screens throughout the United States that we consolidate.
- (5)
- Includes
consolidated theatres only.
- (6)
- Cash
flows provided by operating activities for the 52 weeks ended March 30, 2006 do not include $142,512,000 of cash acquired in the Mergers
which is included in cash flows from investing activities.
- (7)
- During
fiscal 2010, fiscal 2009 and fiscal 2008, equity in earnings including cash distributions from NCM were $34,436,000, $27,654,000 and $22,175,000,
respectively. During fiscal 2008, equity in (earnings) losses of non-consolidated entities includes a gain of $18,751,000 from the sale of Hoyts General Cinema South America and during
fiscal 2007 a gain of $238,810,000 related to the NCM, Inc. intial public offering.
- (8)
- Includes gain of $15,977,000 for the 53 weeks ended April 3, 2008 from the sale of our investment in Fandango, Inc. Includes interest income on temporary cash investments of $17,258,000 for the 52 weeks ended March 29, 2007.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion relates to the audited financial statements of Marquee Holdings Inc., included elsewhere in this Form 10-K. This discussion contains forward-looking statements. Please see "Forward-Looking Statements" for a discussion of the risks, uncertainties and assumptions relating to these statements.
Overview
We are one of the world's leading theatrical exhibition companies. As of April 1, 2010, we owned, operated or had interests in 297 theatres and 4,513 screens with 99%, or 4,458, of our screens in the U.S. and Canada, and 1%, or 55 of our screens in China (Hong Kong), France and the United Kingdom.
Our principal directly owned subsidiaries are AMC Entertainment Inc. ("AMCE"), American Multi-Cinema, Inc. ("AMC") and AMC Entertainment International, Inc. ("AMCEI"). We conduct our theatrical exhibition business through AMC and its subsidiaries and AMCEI and its subsidiaries.
During the fifty-two weeks ended April 1, 2010, we closed 11 theatres with 105 screens in the United States and opened one new managed theatre with six screens in the United States pursuant to a joint venture arrangement resulting in a circuit total of 297 theatres and 4,513 screens.
Our Theatrical Exhibition revenues are generated primarily from box office admissions and theatre concession sales. The balance of our revenues are generated from ancillary sources, including on-screen advertising, rental of theatre auditoriums, fees and other revenues generated from the sale of gift cards and packaged tickets, on-line ticket fees and arcade games located in theatre lobbies.
Box office admissions are our largest source of revenue. We predominantly license "first-run" motion pictures from distributors owned by major film production companies and from independent distributors. We license films on a film-by-film and theatre-by-theatre basis. Film exhibition costs are accrued based on the applicable admissions revenues and estimates of the final settlement pursuant to our film licenses. Licenses that we enter into typically state that rental fees are based on either aggregate terms established prior to the opening of the picture or on a mutually agreed settlement upon the conclusion of the picture run. Under an aggregate terms formula, we pay the distributor a specified percentage of box office receipts or pay based on a scale of percentages tied to different amounts of box office gross. The settlement process allows for negotiation based upon how a film actually performs.
29
Concessions sales are our second largest source of revenue after box office admissions. Concessions items include popcorn, soft drinks, candy, hot dogs and other products. We negotiate prices for our concessions products and supplies directly with concessions vendors on a national or regional basis to obtain high volume discounts or bulk rates and marketing incentives.
Our revenues are dependent upon the timing and popularity of motion picture releases by distributors. The most marketable motion pictures are usually released during the summer and the year-end holiday seasons. Therefore, our business is highly seasonal, with higher attendance and revenues generally occurring during the summer months and holiday seasons. Our results of operations will vary significantly from quarter to quarter.
During fiscal 2010, films licensed from our six largest distributors based on revenues accounted for approximately 84% of our U.S. and Canada admissions revenues. Our revenues attributable to individual distributors may vary significantly from year to year depending upon the commercial success of each distributor's motion pictures in any given year.
During the period from 1990 to 2009, the annual number of first-run motion pictures released by distributors in the United States ranged from a low of 370 in 1995 to a high of 633 in 2008, according to the Motion Picture Association of America 2009 MPAA Theatrical Market Statistics. The number of digital 3D films released increased to a high of 20 in 2009 from a low of 0 during this same time period.
We continually upgrade the quality of our theatre circuit by adding new screens through new builds (including expansions) and acquisitions and by disposing of older screens through closures and sales. We are an industry leader in the development and operation of megaplex theatres, typically defined as a theatre having 14 or more screens and offering amenities to enhance the movie-going experience, such as stadium seating providing unobstructed viewing, digital sound and enhanced seat design. We have increased our 3D screens by 331 to 475 screens and our IMAX screens by 40 to 81 screens during the fifty-two weeks ended April 1, 2010; and as of April 1, 2010, approximately 10.5% of our screens were 3D screens and 1.8% were IMAX screens.
Significant Events
On March 10, 2010, Digital Cinema Implementation Partners, LLC ("DCIP") completed its financing transactions for the deployment of digital projection systems to nearly 14,000 movie theatre screens across North America, including screens operated or managed by AMC Entertainment, Cinemark Holdings, Inc. and Regal Entertainment Group. At closing we contributed 342 projection systems that we owned to DCIP, which we recorded at estimated fair value as part of an additional investment in DCIP of $21,768,000. We also made cash investments in DCIP of $840,000 at closing and DCIP made a distribution of excess cash to us after the closing date and prior to year-end of $1,262,000. We recorded a loss on contribution of the 342 projection systems of $563,000, based on the difference between estimated fair value and our carrying value on the date of contribution. On March 26, 2010, we acquired 117 digital projectors from third party lessors for $6,784,000 and sold them together with seven digital projectors that we owned to DCIP for $6,570,000. We recorded a loss on the sale of these 124 systems to DCIP of $697,000. As of April 1, 2010, we operated 568 digital projection systems leased from DCIP pursuant to operating leases and anticipate that we will have deployed 4,000 of these systems in our existing theatres over the next three to four years. The additional digital projection systems will allow us to add additional 3D screens to our circuit where we are generally able to charge a higher admission price than 2D. The digital projection systems leased from DCIP and its affiliates will replace most of our existing 35 millimeter projection systems in our U.S. theatres. We are examining the estimated depreciable lives for our existing equipment that will be replaced and expect to accelerate the depreciation of these existing 35 millimeter projection systems, based on the estimated digital projection system deployment timeframe.
30
On December 9, 2009, we entered into a definitive agreement with Kerasotes pursuant to which we acquired substantially all of the assets of Kerasotes. Kerasotes operated 95 theatres and 972 screens in mid-sized, suburban and metropolitan markets, primarily in the Midwest. More than three quarters of the Kerasotes theatres feature stadium seating and almost 90 percent have been built since 1994. On May 24, 2010, we completed the acquisition. The purchase price for the Kerasotes theatres paid in cash at closing was $275,000,000 and is subject to working capital and other purchase price adjustments as described in the Unit Purchase Agreement.
On June 9, 2009, we completed the offering of $600,000,000 aggregate principal amount of our 8.75% Senior Notes due 2019 (the "Notes due 2019"). Concurrently with the initial notes offering, we launched a cash tender offer and consent solicitation for any and all of our then outstanding $250,000,000 aggregate principal amount of 85/8% Senior Notes due 2012 (the "Fixed Notes due 2012") at a purchase price of $1,000 plus a $30 consent fee for each $1,000 of principal amount of currently outstanding Fixed Notes due 2012 validly tendered and accepted by us on or before the early tender date (the "Cash Tender Offer"). We used the net proceeds from the issuance of the Notes due 2019 to pay the consideration for the Cash Tender Offer plus accrued and unpaid interest on the $238,065,000 principal amount of the Fixed Notes due 2012. We recorded a loss on extinguishment related to the Cash Tender Offer of $10,826,000 in Other expense during the fifty-two weeks ended April 1, 2010, which included previously capitalized deferred financing fees of $3,312,000, consent fee paid to holders of $7,142,000, and other expenses of $372,000. On August 15, 2009, we redeemed the remaining $11,935,000 of Fixed Notes due 2012 at a price of $1,021.56 per $1,000 principal in accordance with the terms of the indenture. We recorded a loss of $450,000 in Other expense related to the extinguishment of the remaining Fixed Notes due 2012 principal during the fifty-two weeks ended April 1, 2010, which included previously capitalized deferred financing fees of $157,000, a consent fee paid to the holder of $257,000 and other expenses of $36,000.
We acquired Grupo Cinemex, S.A. de C.V. ("Cinemex") in January 2006 as part of a larger acquisition of Loews Cineplex Entertainment Corporation. We do not operate any other theatres in Mexico and have divested of the majority of our other investments in international theatres in Japan, Hong Kong, Spain, Portugal, Argentina, Brazil, Chile, and Uruguay over the past several years as part of our overall business strategy.
On December 29, 2008, we sold all of our interests in Cinemex, which then operated 44 theatres with 493 screens primarily in the Mexico City Metropolitan Area, to Entretenimiento GM de Mexico S.A. de C.V. ("Entretenimiento"). The purchase price received at the date of the sale and in accordance with the Stock Purchase Agreement was $248,141,000. During the year ended April 1, 2010, we received payments of $4,315,000 for purchase price related to tax payments and refunds, and a working capital calculation and post closing adjustments. Additionally, we estimate that we are contractually entitled to receive an additional $8,752,000 of the purchase price related to tax payments and refunds. While we believe we are entitled to these amounts from Cinemex, the collection will require litigation which was initiated by us on April 30, 2010. Resolution could take place over a prolonged period. As a result of the litigation, we have established an allowance for doubtful accounts related to this receivable in the amount of $7,480,000 and further directly charged off $1,381,000 of certain amounts as uncollectible with an offsetting charge of $8,861,000 recorded to loss on disposal included as a component of discontinued operations.
The operations and cash flows of the Cinemex theatres have been eliminated from our ongoing operations as a result of the disposal transaction. We do not have any significant continuing involvement in the operations of the Cinemex theatres. The results of operations of the Cinemex theatres have been classified as discontinued operations for all periods presented.
In May 2007, we disposed of our investment in Fandango, accounted for using the cost method, for total proceeds of $20,360,000, of which $17,977,000 was received in May and September 2007 and
31
$2,383,000 was received in November 2008, and have recorded a gain on the sale, included in investment income, of approximately $15,977,000 during fiscal 2008 and $2,383,000 during fiscal 2009. In July 2007 we disposed of our investment in HGCSA, an entity that operated 17 theatres in South America, for total proceeds of approximately $28,682,000 and recorded a gain on the sale, included in equity earnings of non-consolidated entities, of approximately $18,751,000.
Critical Accounting Estimates
The accounting estimates identified below are critical to our business operations and the understanding of our results of operations. The impact of, and any associated risks related to, these estimates on our business operations are discussed throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations where such estimates affect our reported and expected financial results. For a detailed discussion on the application of these estimates and other accounting policies, see the notes to Holdings' Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. The methods and judgments we use in applying our accounting estimates have a significant impact on the results we report in our financial statements. Some of our accounting estimates require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include the assessment of recoverability of long-lived assets, including intangibles, which impacts impairment of long-lived assets when we impair assets or accelerate their depreciation; recoverability of goodwill, which creates the potential for write-offs of goodwill; recognition and measurement of current and deferred income tax assets and liabilities, which impacts our tax provision; recognition and measurement of net periodic benefit costs for our pension and other defined benefit programs, which impacts general and administrative expense; and estimation of film settlement terms and measurement of film rental fees which impacts film exhibition costs.
Impairments. We review long-lived assets, including definite-lived intangibles, investments in non-consolidated subsidiaries accounted for under the equity method, marketable equity securities and internal use software for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We identify impairments related to internal use software when management determines that the remaining carrying value of the software will not be realized through future use. We review internal management reports on a quarterly basis as well as monitor current and potential future competition in the markets where we operate for indicators of triggering events or circumstances that indicate impairment of individual theatre assets. We evaluate theatres using historical and projected data of theatre level cash flow as our primary indicator of potential impairment and consider the seasonality of our business when making these evaluations. We perform an annual impairment analysis during the fourth quarter because Christmas and New Year's holiday results comprise a significant portion of our operating cash flow and the actual results from this period, which are available during the fourth quarter of each fiscal year, are an integral part of our impairment analysis. Under these analyses, if the sum of the estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying value of the asset exceeds its estimated fair value. Assets are evaluated for impairment on an individual theatre basis, which we believe is the lowest level for which there are identifiable cash flows. The impairment evaluation is based on the estimated cash flows from continuing use until the expected disposal date or the fair value of furniture, fixtures and equipment. The expected disposal date does not exceed the remaining lease period unless it is probable the lease period will be extended and may be less than the remaining lease period when we do not expect to operate the theatre to the end of its lease term. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows. The fair value of furniture, fixtures and equipment has been determined using similar asset sales and in some instances the assistance of third party valuation studies. The discount rate used in determining the present value of the estimated future cash flows was based on
32
management's expected return on assets during fiscal 2010, 2009, and 2008. There is considerable management judgment necessary to determine the future cash flows, fair value and the expected operating period of a theatre, and, accordingly, actual results could vary significantly from such management estimates, which fall under Level 3 within the fair value measurement hierarchy. See Note 14Fair Value Measurements to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. We have recorded impairments of long-lived assets of $3,765,000, $73,547,000, and $8,933,000 during fiscal 2010, 2009, and 2008, respectively.
Goodwill. Our recorded goodwill was $1,836,731,000 as of April 1, 2010 and April 2, 2009, and unamortized trademark intangible assets were $74,000,000 as of April 1, 2010 and April 2, 2009. We evaluate goodwill and our trademark for impairment annually as of the beginning of the fourth fiscal quarter or more frequently as specific events or circumstances dictate. Our goodwill is recorded in our Theatrical Exhibition operating segment, which is also the reporting unit for purposes of evaluating recorded goodwill for impairment. If the carrying value of the reporting unit exceeds its fair value, we are required to reallocate the fair value of the reporting unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. We determine fair value by using an enterprise valuation methodology determined by applying multiples to cash flow estimates less net indebtedness, which we believe is an appropriate method to determine fair value. There is considerable management judgment with respect to cash flow estimates and appropriate multiples and discount rates to be used in determining fair value and such management estimates fall under Level 3 within the fair value measurement hierarchy.
We performed our annual impairment analysis during the fourth quarter of fiscal 2010. The fair value of our Theatrical Exhibition operations exceed the carrying value by more than 10% and management does not believe that impairment is probable.
Income taxes. In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense as well as operating loss and tax credit carryforwards. We must assess the likelihood that we will be able to recover our deferred tax assets in each domestic and foreign tax jurisdiction in which we operate. If recovery is not more likely than not, we must record a valuation allowance for the deferred tax assets that we estimate are more likely than not unrealizable. As of April 1, 2010, we had recorded approximately $104,500,000 of net deferred tax assets (net of valuation allowances of approximately $(302,535,000) related to the estimated future tax benefits and liabilities of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carryforwards). Our income tax benefit in fiscal 2010 includes the release of $62,218,000 of valuation allowance for deferred tax assets. The recoverability of these deferred income tax assets is dependent upon our ability to generate future taxable income in the relevant taxing jurisdictions. Projections of future taxable income require considerable management judgment about future attendance levels, revenues and expenses.
Pension and Postretirement Assumptions. Pension and postretirement benefit obligations and the related effects on operations are calculated using actuarial models. Two critical assumptions, discount rate and expected return on assets, are important elements of plan expense and/or liability measurement. We evaluate these critical assumptions at least annually. In addition, medical trend rates are an important assumption in projecting the medical claim levels for our postretirement benefit plan. Other assumptions affecting our pension and postretirement obligations involve demographic factors such as retirement, expected increases in compensation, mortality and turnover. These assumptions are evaluated periodically and are updated to reflect our experience. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
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The discount rate enables us to state expected future cash flows at a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement expense. For our principal pension plans, a 50 basis point decrease in the discount rate would increase pension expense by approximately $660,000. For our postretirement plans, a 50 basis point decrease in the discount rate would increase postretirement expense by approximately $33,000. For fiscal 2010, we decreased our discount rate from 7.43% to 6.16% for our pension plans and from 7.42% to 5.97% for our postretirement benefit plan.
To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets obtained from our investment portfolio manager. A 50 basis point decrease in the expected return on assets of our qualified defined benefit pension plan would increase pension expense on our principal plans by approximately $269,000 per year.
The annual rate of increase in the per capita cost of covered health care benefits assumed for 2010 was 8.0% for medical and 4.0% for dental and vision. The rates were assumed to decrease gradually to 5.0% for medical in 2017 and remain at 4.0% for dental. In fiscal 2009 the rates for medical were assumed to decrease gradually to 5.0% for medical in 2012. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of April 1, 2010 by $2,204,000 and the aggregate of the service and interest cost components of postretirement expense for fiscal 2010 by $147,000. Decreasing the assumed health care cost trend rates by one percentage point in each year would decrease the accumulated postretirement obligation for fiscal 2010 by $1,879,000 and the aggregate service and interest cost components of postretirement expense for fiscal 2010 by $125,000. Note 11Employee Benefit Plans to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K includes disclosures of our pension plan and postretirement plan assumptions and information about our pension plan assets.
Film Exhibition Costs. We predominantly license "first-run" motion pictures on a film-by-film and theatre-by-theatre basis from distributors owned by major film production companies and from independent distributors. We obtain these licenses based on several factors, including number of seats and screens available for a particular picture, revenue potential and the location and condition of our theatres. We pay rental fees on a negotiated basis.
Licenses that we enter into typically state that rental fees are based on either aggregate terms established prior to the opening of the picture or on a mutually agreed settlement upon the conclusion of the picture run. Under an aggregate terms formula, we pay the distributor a specified percentage of box office receipts or pay based on a scale of percentages tied to different amounts of box office gross. The settlement process allows for negotiation based upon how a film actually performs.
We accrue film exhibition costs based on the applicable box office receipts and estimates of the final settlement pursuant to the film licenses entered into with our distributors. Generally, less than one third of our quarterly film exhibition cost is estimated at period-end. The length of time until these costs are known with certainty depends on the ultimate duration of the film play, but is typically "settled" within two to three months of a particular film's opening release. Upon settlement with our film distributors, film cost expense and the related film cost payable are adjusted to the final film settlement. Such adjustments have been historically insignificant. However, actual film costs and film costs payable could differ materially from those estimates. For fiscal years 2010, 2009, and 2008 there were no significant changes in our film cost estimation and settlement procedures.
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Operating Results
The following table sets forth our revenues, costs and expenses attributable to our operations. Reference is made to Note 15Operating Segment to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information therein.
Both fiscal years 2010 and 2009 include 52 weeks and fiscal year 2008 includes 53 weeks.
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Revenues |
|||||||||||
Theatrical exhibition |
|||||||||||
Admissions |
$ | 1,711,853 | $ | 1,580,328 | $ | 1,615,606 | |||||
Concessions |
646,716 | 626,251 | 648,330 | ||||||||
Other theatre |
59,170 | 58,908 | 69,108 | ||||||||
Total revenues |
$ | 2,417,739 | $ | 2,265,487 | $ | 2,333,044 | |||||
Costs and Expenses |
|||||||||||
Theatrical exhibition |
|||||||||||
Film exhibition costs |
$ | 928,632 | $ | 842,656 | $ | 860,241 | |||||
Concession costs |
72,854 | 67,779 | 69,597 | ||||||||
Operating expense |
610,774 | 576,022 | 572,740 | ||||||||
Rent |
440,664 | 448,803 | 439,389 | ||||||||
|
2,052,924 | 1,935,260 | 1,941,967 | ||||||||
General and administrative expense: |
|||||||||||
Merger, acquisition and transaction costs |
2,383 | 652 | 6,372 | ||||||||
Management fee |
5,000 | 5,000 | 5,000 | ||||||||
Other |
57,964 | 53,747 | 39,177 | ||||||||
Depreciation and amortization |
188,342 | 201,413 | 222,111 | ||||||||
Impairment of long-lived assets |
3,765 | 73,547 | 8,933 | ||||||||
Total costs and expenses |
$ | 2,310,378 | $ | 2,269,619 | $ | 2,223,560 | |||||
Operating Data (at period end): |
|||||||||||
Screen additions |
6 | 83 | 136 | ||||||||
Screen dispositions |
105 | 77 | 196 | ||||||||
Average screenscontinuing operations(1) |
4,485 | 4,545 | 4,561 | ||||||||
Number of screens operated |
4,513 | 4,612 | 4,606 | ||||||||
Number of theatres operated |
297 | 307 | 309 | ||||||||
Screens per theatre |
15.2 |
15.0 |
14.9 |
||||||||
Attendance (in thousands)continuing operations(1) |
200,285 |
196,184 |
207,603 |
- (1)
- Includes consolidated theatres only.
We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as earnings (loss) from continuing operations plus (i) income tax provisions (benefit), (ii) interest expense and (iii) depreciation and amortization, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
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Reconciliation of Adjusted EBITDA
(unaudited)
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Earnings (loss) from continuing operations |
$ | 47,188 | $ | (120,886 | ) | $ | 20,931 | |||||
Plus: |
||||||||||||
Income tax provision (benefit) |
(68,800 | ) | 5,800 | 1,020 | ||||||||
Interest expense |
162,072 | 151,647 | 167,407 | |||||||||
Depreciation and amortization |
188,342 | 201,413 | 222,111 | |||||||||
Impairment of long-lived assets |
3,765 | 73,547 | 8,933 | |||||||||
Certain operating expenses (1) |
6,099 | 1,517 | (16,248 | ) | ||||||||
Equity in non-consolidated entities |
(30,300 | ) | (24,823 | ) | (43,019 | ) | ||||||
Investment loss (income) |
(240 | ) | (1,731 | ) | (23,923 | ) | ||||||
Other (income) expense(2) |
11,276 | | (1,246 | ) | ||||||||
General and administrative expense: |
||||||||||||
Merger, acquisition and transaction costs |
2,383 | 652 | 6,372 | |||||||||
Management fee |
5,000 | 5,000 | 5,000 | |||||||||
Stock-based compensation expense |
1,384 | 2,622 | 207 | |||||||||
Adjusted EBITDA |
$ | 328,169 | $ | 294,758 | $ | 347,545 | ||||||
- (1)
- Amounts
represent preopening expense, theatre and other closure expense (income) and disposition of assets and other gains included in operating expenses.
- (2)
- Other expense for fiscal 2010 is comprised of the loss on extinguishment of indebtedness related to the Cash Tender Offer and remaining redemption. Other income for fiscal 2008 is comprised of recoveries for property loss related to Hurricane Katrina.
Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net earnings (loss) as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We have included Adjusted EBITDA because we believe it provides management and investors with additional information to measure our performance and liquidity, estimate our value and evaluate our ability to service debt. In addition, we use Adjusted EBITDA for incentive compensation purposes.
Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. For example, Adjusted EBITDA:
-
- does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments;
-
- does not reflect changes in, or cash requirements for, our working capital needs;
-
- does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal
payments, on our debt;
-
- excludes tax payments that represent a reduction in cash available to us;
-
- does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the
future; and
-
- does not reflect management fees that may be paid to our sponsors.
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For the Year Ended April 1, 2010 and April 2, 2009
Revenues. Total revenues increased 6.7%, or $152,252,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009. Admissions revenues increased 8.3%, or $131,525,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009, due to a 6.1% increase in average ticket prices and a 2.1% increase in attendance. Admissions revenues at comparable theatres (theatres opened on or before the first quarter of fiscal 2009) increased 8.5%, or $131,470,000, during the year ended April 1, 2010 from the comparable period last year. The increase in average ticket price was primarily due to increases in attendance from IMAX and 3D film product where we are able to charge more per ticket than for a standard 2D film, as well as our practice of periodically reviewing ticket prices and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Attendance was positively impacted by more favorable 3D and IMAX film product during the year ended April 1, 2010 as compared to the year ended April 2, 2009, as well as by an increase in the number of IMAX and 3D screens that we operate. Concessions revenues increased 3.3%, or $20,465,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009, due primarily to the increase in attendance. Other theatre revenues increased 0.4%, or $262,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009, primarily due to increases in on-line ticket fees, partially offset by a reduction in theatre rentals.
Costs and expenses. Total costs and expenses increased 1.8%, or $40,759,000 during the year ended April 1, 2010 compared to the year ended April 2, 2009. Film exhibition costs increased 10.2%, or $85,976,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009 due to the increase in admissions revenues and the increase in film exhibition costs as a percentage of admissions revenues. As a percentage of admissions revenues, film exhibition costs were 54.2% in the current period and 53.3% in the prior year period primarily due to an increase in admissions revenues on higher grossing films, which typically carry a higher film cost as a percentage of admissions revenues. Concession costs increased 7.5%, or $5,075,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009 due to an increase in concession costs as a percentage of concessions revenues and the increase in concession revenues. As a percentage of concessions revenues, concession costs were 11.3% in the current period compared with 10.8% in the prior period. As a percentage of revenues, operating expense was 25.3% in the current period as compared to 25.4% in the prior period. Rent expense decreased 1.8%, or $8,139,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009 primarily due to rent reductions from landlords related to their failure to meet co-tenancy provisions in certain lease agreements and renegotiations on more favorable terms. Rent reductions related to co-tenancy may not continue should our landlords meet the related co-tenancy provisions in the future.
General and Administrative Expense:
Merger, acquisition and transaction costs. Merger, acquisition and transaction costs increased $1,731,000 during the year ended April 1, 2010 compared to the year ended April 2, 2009 primarily due to costs incurred related to the Kerasotes acquisition during the current year.
Management fees. Management fees were unchanged during the year ended April 1, 2010. Management fees of $1,250,000 are paid quarterly, in advance, to our Sponsors in exchange for consulting and other services.
Other. Other general and administrative expense increased 7.8%, or $4,217,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009 due primarily to increases in annual incentive compensation of approximately $12,000,000 based on improved operating performance and increases in net periodic pension expense of $4,654,000, partially offset by decreases in cash severance payments of $7,014,000 to our former Chief Executive Officer made in the prior year and a decrease in expense related to a union-sponsored pension plan of $3,879,000. During the year ended April 2, 2009,
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we recorded $5,279,000 of expense related to our partial withdrawal liability for a union-sponsored pension plan. During the year ended April 1, 2010, we recorded $1,400,000 of expense related to our estimated complete withdrawal from the union-sponsored pension plan.
Depreciation and Amortization. Depreciation and amortization decreased 6.5%, or $13,071,000, compared to the prior year due primarily to the impairment of long-lived assets in fiscal 2009.
Impairment of Long-Lived Assets. During the year ended April 1, 2010, we recognized non-cash impairment losses of $3,765,000 related to theatre fixed assets and real estate recorded in other long-term assets. We recognized an impairment loss of $2,330,000 on five theatres with 41 screens (in Florida, California, New York, Utah and Maryland). Of the theatre charge, $2,330,000 was related to property, net. We also adjusted the carrying value of undeveloped real estate assets based on a recent appraisal which resulted in an impairment charge of $1,435,000. During the year ended April 2, 2009, we recognized non-cash impairment losses of $73,547,000 related to theatre fixed assets, internal use software and assets held for sale. We recognized an impairment loss of $65,636,000 on 34 theatres with 520 screens (in Arizona, California, Canada, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, New York, North Carolina, Ohio, Texas, Virginia, Washington and Wisconsin). Of the theatre charge, $1,365,000 was related to intangible assets, net, and $64,271,000 was related to property, net. We recognized an impairment loss on abandonment of internal use software, recorded in other long-term assets of $7,125,000 when management determined that the carrying value would not be realized through future use. We adjusted the carrying value of our assets held for sale to reflect the subsequent sales proceeds received in January 2009 and declines in fair value, which resulted in impairment charges of $786,000.
Other (Income) Expense. Other (income) expense includes $(13,591,000) and $(14,139,000) of income related to the derecognition of gift card liabilities, as to which we believe future redemption to be remote, during the year ended April 1, 2010 and April 2, 2009, respectively. Other (income) expense includes a loss on extinguishment of indebtedness of $11,276,000 related to the Cash Tender Offer during the year ended April 1, 2010.
Interest Expense. Interest expense increased 6.9%, or $10,425,000, primarily due to an increase in interest expense related to the issuance of the Notes due 2019, partially offset by a decrease in interest rates on the senior secured credit facility and extinguishment of debt from the Cash Tender Offer.
Equity in Earnings of Non-Consolidated Entities. Equity in earnings of non-consolidated entities was $30,300,000 in the current year compared to $24,823,000 in the prior year. Equity in earnings related to our investment in National CineMedia, LLC were $34,436,000 and $27,654,000 for the year ended April 1, 2010 and April 2, 2009, respectively. We recognized an impairment loss of $2,742,000 related to an equity method investment in one U.S. motion picture theatre during the year ended April 2, 2009.
Investment Income. Investment income was $240,000 for the year ended April 1, 2010 compared to $1,731,000 for the year ended April 2, 2009. The year ended April 2, 2009 includes a gain of $2,383,000 from the May 2008 sale of our investment in Fandango, which was the result of receiving the final distribution from the general claims escrow account. During the year ended April 2, 2009, we recognized an impairment loss of $1,512,000 related to unrealized losses previously recorded in accumulated other comprehensive income on marketable securities related to one of our deferred compensation plans when we determined the decline in fair value below historical cost to be other than temporary.
Income Tax Provision (Benefit). The income tax provision (benefit) from continuing operations was a benefit of ($68,800,000) for the year ended April 1, 2010 and a provision of $5,800,000 for the year ended April 2, 2009. Our income tax benefit in fiscal 2010 includes the release of $62,218,000 of valuation allowance for deferred tax assets. See Note 9Income Taxes to the Consolidated Financial
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Statements included elsewhere in this Annual Report on Form 10-K for our effective income tax rate reconciliation.
Earnings (Loss) from Discontinued Operations, Net. On December 29, 2008, we sold our operations in Mexico, including 44 theatres and 493 screens. The results of operations of the Cinemex theatres have been classified as discontinued operations for all years presented and includes bad debt expense related to amounts due from Cinemex of $8,861,000 for the year ended April 1, 2010. See Note 2Discontinued Operations to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for the components of the earnings from discontinued operations.
Net Earnings (Loss). Net earnings (loss) were $39,654,000 and $(111,158,000) for the year ended April 1, 2010 and April 2, 2009, respectively. Net earnings were favorably impacted by a $62,218,000 reduction in the valuation allowance for deferred income tax assets. Net earnings during the year ended April 1, 2010 were negatively impacted by an expense of $11,276,000 related to the Cash Tender Offer and by losses of $8,861,000 related to the allowance for doubtful accounts and direct write-offs of amounts due from Cinemex included in discontinued operations. Net loss for the year ended April 2, 2009 was primarily due to impairment charges of $73,547,000.
For the Year Ended April 2, 2009 and April 3, 2008
Revenues. Total revenues decreased 2.9%, or $67,557,000, during the year ended April 2, 2009 compared to the year ended April 3, 2008. Fiscal year 2009 includes 52 weeks and fiscal year 2008 includes 53 weeks which we estimate contributed approximately $30,000,000 to the decline in our total revenues. Admissions revenues decreased 2.2%, or $35,278,000, during the year ended April 2, 2009 compared to the year ended April 3, 2008, due to a 5.5% decrease in attendance partially offset by a 3.6% increase in average ticket price. The increase in average ticket price was primarily due to our practice of periodically reviewing ticket prices and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Admissions revenues at comparable theatres (theatres opened on or before the first quarter of fiscal 2008) decreased 4.1%, or $63,821,000, during the year ended April 2, 2009 from the comparable period last year. Based upon available industry sources, box office revenues of our comparable theatres slightly underperformed the overall industry comparable theatres in the markets where we operate. We believe our underperformance is primarily the result of changes in distribution patterns and an increase in the number of prints released in our markets. While our box office performance on such films was in line with our expectations, the increase in prints in our market diluted our overall performance against the industry. Concessions revenues decreased 3.4%, or $22,079,000, during the year ended April 2, 2009 compared to the year ended April 3, 2008 due to the decrease in attendance partially offset by a 2.2% increase in average concessions per patron. Other theatre revenues decreased 14.8%, or $10,200,000, during the year ended April 2, 2009 compared to year ended April 3, 2008, primarily due to a decrease in advertising revenues. See Note 1The Company and Significant Accounting Policies, Revenues to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for discussion of the change in estimate for revenues recorded during the years ended April 2, 2009 and April 3, 2008.
Costs and expenses. Total costs and expenses increased 2.1%, or $46,059,000, during the year ended April 2, 2009 compared to the year ended April 3, 2008. Film exhibition costs decreased 2.0%, or $17,585,000, during the year ended April 2, 2009 compared to the year ended April 3, 2008 due to the decrease in admissions revenues partially offset by an increase in film exhibition costs as a percentage of admission revenues. As a percentage of admissions revenues, film exhibition costs were 53.3% in the current year as compared with 53.2% in the prior year. Concession costs decreased 2.6%, or $1,818,000, during the year ended April 2, 2009 compared to the year ended April 3, 2008 due to the decrease in concession revenues partially offset by an increase in concession costs as a percentage of concessions revenues. As a percentage of concessions revenues, concession costs were 10.8% in the
39
current year and 10.7% in the prior year. As a percentage of revenues, operating expense was 25.4% in the current year and 24.5% in the prior year. Operating expense in the current and prior year includes $2,262,000 and $20,970,000 of theatre and other closure income, respectively, due primarily to lease terminations negotiated on favorable terms. Rent expense increased 2.1%, or $9,414,000, during the year ended April 2, 2009 compared to the year ended April 3, 2008 due primarily to the opening of new theatres. Preopening expense decreased $1,709,000 during the year ended April 2, 2009 due to a decline in screen additions.
General and Administrative Expense:
Merger, acquisition and transaction costs. Merger, acquisition and transaction costs decreased $5,720,000 during the year ended April 2, 2009 compared to the year ended April 3, 2008. Prior year costs are primarily comprised of professional and consulting expenses related to a proposed initial public offering of common stock that was withdrawn on June 19, 2007 and preacquisition expenses for casualty insurance losses that occurred prior to the merger with Loews.
Management fees. Management fees were unchanged during the year ended April 2, 2009. Management fees of $1,250,000 are paid quarterly, in advance, to our Sponsors in exchange for consulting and other services.
Other. Other general and administrative expense increased 37.2%, or $14,570,000, during the year ended April 2, 2009 compared to the year ended April 3, 2008. The increase in other general and administrative expenses is primarily due to a cash severance payment of $7,014,000 to our former Chief Executive Officer and an expense of $5,279,000 related to our partial withdrawal liability for a union-sponsored pension plan, partially offset by a pension curtailment gain of $1,072,000 as a result of the retirement of our former chief executive officer.
Depreciation and Amortization. Depreciation and amortization decreased 9.3%, or $20,698,000, compared to the prior year due primarily to certain intangible assets becoming fully amortized, the closing of theatres and impairment of long-lived assets.
Impairment of Long-Lived Assets. During fiscal 2009 we recognized non-cash impairment losses of $73,547,000 related to theatre fixed assets, internal use software and assets held for sale. We recognized an impairment loss of $65,636,000 on 34 theatres with 520 screens (in Arizona, California, Canada, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, New York, North Carolina, Ohio, Texas, Virginia, Washington and Wisconsin). Of the theatre charge, $1,365,000 was related to intangible assets, net, and $64,271,000 was related to property, net. We recognized an impairment loss on abandonment of internal use software, recorded in other long-term assets of $7,125,000 when management determined that the carrying value would not be realized through future use, we adjusted the carrying value of our assets held for sale to reflect the sales proceeds received in fiscal 2009 and declines in fair value, which resulted in impairment charges of $786,000. During fiscal 2008 we recognized a non-cash impairment loss of $8,933,000 that reduced property, net on 17 theatres with 176 screens (in New York, Maryland, Indiana, Illinois, Nebraska, Oklahoma, California, Arkansas, Pennsylvania, Washington, and the District of Columbia).
Other Income. Other income includes $14,139,000 and $11,289,000 of income related to the derecognition of gift card liabilities, as to which we believe future redemption to be remote, during the year ended April 2, 2009 and April 3, 2008, respectively. Other income includes insurance recoveries related to Hurricane Katrina of $1,246,000 for property losses in excess of property carrying cost and $397,000 for business interruption during the year ended April 3, 2008.
40
Interest Expense. Interest expense decreased 9.4%, or $15,760,000, primarily due to decreased interest rates on the senior secured credit facility.
Equity in Earnings of Non-Consolidated Entities. Equity in earnings of non-consolidated entities was $24,823,000 in the current year compared to $43,019,000 in the prior year. Equity in earnings related to our investment in National CineMedia, LLC were $27,654,000 and $22,175,000 for the year ended April 2, 2009 and April 3, 2008, respectively. Equity in earnings related to HGCSA was $18,743,000 during the year ended April 3, 2008 and includes the gain related to the disposition of $18,751,000. We recognized an impairment loss of $2,742,000 related to an equity method investment in one U.S. motion picture theatre during the year ended April 2, 2009.
Investment Income. Investment income was $1,731,000 for the year ended April 2, 2009 compared to $23,923,000 for the year ended April 3, 2008. The year ended April 2, 2009 and April 3, 2008 include a gain on the sale of our investment in Fandango of $2,383,000 and $15,977,000, respectively. Interest income decreased $6,672,000 from the prior year primarily due to decreases in temporary investments and decreases in rates of interest earned on temporary investments. During the year ended April 2, 2009, we recognized an impairment loss of $1,512,000 related to unrealized losses previously recorded in accumulated other comprehensive income on marketable securities related to one of our deferred compensation plans when we determined the decline in fair value below historical cost to be other than temporary.
Income Tax Provision. The provision for income taxes from continuing operations was $5,800,000 for the year ended April 2, 2009 and $1,020,000 for the year ended April 3, 2008 with the reduction due primarily to the decrease in earnings from continuing operations before income taxes. See Note 9Income Taxes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Earnings from Discontinued Operations, Net. On December 29, 2008, we sold our operations in Mexico, including 44 theatres and 493 screens. The results of operations of the Cinemex theatres have been classified as discontinued operations, and information presented for all years reflects the new classification. See Note 2Discontinued Operations to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for the components of the earnings from discontinued operations.
Net Earnings (Loss). Net earnings (loss) were $(111,158,000) and $22,733,000 for the year ended April 2, 2009 and April 3, 2008, respectively. The decrease in net earnings was primarily due to impairment charges of $73,547,000 in the current year and the recognition of a gain on disposition of HGCSA of $18,751,000, a gain on the disposition of Fandango of $15,977,000 and theatre and other closure income of $20,970,000 which were recorded in the prior year.
Liquidity and Capital Resources
Our consolidated revenues are primarily collected in cash, principally through box office admissions and theatre concessions sales. We have an operating "float" which partially finances our operations and which generally permits us to maintain a smaller amount of working capital capacity. This float exists because admissions revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors from 20 to 45 days following receipt of box office admissions revenues. Film distributors generally release the films which they anticipate will be the most successful during the summer and holiday seasons. Consequently, we typically generate higher revenues during such periods.
We have the ability to borrow against our senior secured credit facility to meet obligations as they come due (subject to limitations on the incurrence of indebtedness in our various debt instruments) and had approximately $187,168,000 under our senior secured revolving credit facility available to meet
41
these obligations as of April 1, 2010. Reference is made to Note 7Corporate Borrowings and Capital and Financing Lease Obligations to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for information about our outstanding indebtedness and outstanding indebtedness of Holdings and Parent.
We fund the costs of constructing, maintaining and remodeling new theatres through existing cash balances, cash generated from operations or borrowed funds, as necessary. We generally lease our theatres pursuant to long-term non-cancelable operating leases which may require the developer, who owns the property, to reimburse us for the construction costs. We may decide to own the real estate assets of new theatres and, following construction, sell and leaseback the real estate assets pursuant to long-term non-cancelable operating leases.
We believe that cash generated from operations and existing cash and equivalents will be sufficient to fund operations and planned capital expenditures and acquisitions currently and for at least the next 12 months and enable us to maintain compliance with covenants related to the senior secured credit facility and our 8% Senior Subordinated Notes due 2014 (the "Notes due 2014"), 11% Senior Subordinated Notes due 2016 (the "Notes due 2016"), Notes due 2019, and 12% Discount Notes due 2014. We are considering various options with respect to the utilization of cash and equivalents on hand in excess of our anticipated operating needs. Such options might include, but are not limited to, acquisitions of theatres or theatre companies, repayment of corporate borrowings of AMCE, Holdings and Parent and payment of dividends.
Holding Company Status
Marquee Holdings Inc. is a holding company with no operations of its own and has no ability to service interest or principal on its indebtedness or pay dividends other than through any dividends it may receive from its subsidiaries. Under certain circumstances, AMC Entertainment is restricted from paying dividends to Holdings by the terms of the indentures relating to its notes and its senior secured credit facility. AMC Entertainment's senior secured credit facility and note indentures contain provisions which limit the amount of dividends and advances which it may pay or make to Holdings. Under the most restrictive of these provisions, set forth in the note indenture for the 11% Senior Subordinated notes due 2016, (the "Notes due 2016") the amount of loans and dividends which AMC Entertainment could make to Holdings may not exceed approximately $309,752,000 in the aggregate as of April 1, 2010. Under the note indentures, a loan to Holdings would have to be on terms no less favorable to AMC Entertainment than could be obtained in a comparable transaction on an arm's length basis with an unaffiliated third party and be in the best interest of AMC Entertainment. Provided no event of default has occurred or would result, the senior secured credit facility also permits AMC Entertainment to pay cash dividends to Holdings for specified purposes, including indemnification claims, taxes, up to $4,000,000 annually for operating expenses, repurchases of equity awards to satisfy tax withholding obligations, specified management fees, fees and expenses of permitted equity and debt offerings and to pay for the repurchase of stock from employees, directors and consultants under benefit plans up to specified amounts. Depending on the net senior secured leverage ratio, as defined in the senior secured credit facility, AMC Entertainment may also pay Holdings a portion of net cash proceeds from specified assets sales.
Cash Flows from Operating Activities
Cash flows provided by operating activities, as reflected in the Consolidated Statements of Cash Flows, were $228,951,000, $168,096,000 and $201,676,000 during the years ended April 1, 2010, April 2, 2009 and April 3, 2008 respectively. The increase in operating cash flows during the year ended April 1, 2010 is primarily due to an increase in accrued expenses and other liabilities as a result of increases in accrued interest and annual incentive compensation and the increase in attendance. The decrease in operating cash flows during the year ended April 2, 2009 is primarily due to the decrease in net
42
earnings which was partially offset by an increase in non-cash impairment charges. We had working capital surplus as of April 1, 2010 and April 2, 2009 of $141,685,000 and $257,714,000, respectively. Working capital includes $125,842,000 and $121,628,000 of deferred revenue as of April 1, 2010 and April 2, 2009, respectively.
Cash Flows from Investing Activities
Cash provided by (used in) investing activities, as reflected in the Consolidated Statement of Cash Flows were $(96,337,000), $100,925,000 and $(139,405,000) during the years ended April 1, 2010, April 2, 2009 and April 3, 2008, respectively. On March 26, 2010, we acquired 117 digital projection systems from third party lessors for $6,784,000 and sold these systems together with seven digital projectors that we owned to DCIP for cash proceeds of $6,570,000 on the same day. Cash outflows from investing activities include capital expenditures of $97,011,000 during the year ended April 1, 2010. We expect that our gross capital expenditures in fiscal 2011 will be approximately $120,000,000 to $150,000,000.
Cash flows for the year ended April 2, 2009 include proceeds from the sale of Cinemex of $224,378,000 and proceeds from the sale of Fandango of $2,383,000. We have received an additional $4,315,000 of purchase price from Cinemex related to tax payments and refunds and a working capital calculation and post closing adjustments during the year ended April 1, 2010. Cash flows for the year ended April 3, 2008 include proceeds from the disposal of HGCSA and Fandango of $28,682,000 and $17,977,000, respectively.
Cash Flows from Financing Activities
Cash flows provided by (used in) financing activities, as reflected in the Consolidated Statement of Cash Flows, were $(170,034,000), $161,843,000 and $(270,690,000) during the years ended April 1, 2010, April 2, 2009 and April 3, 2008, respectively.
During fiscal 2010, AMCE used cash on hand to pay two dividend distributions to Holdings in an aggregate amount of $329,981,000, and Holdings made two dividend payments to its stockholder, Parent, totaling $300,881,000, which were treated as reductions of additional paid-in capital. Holdings used the available funds to make cash interest payments on its 12% Senior Discount Notes due 2014, to pay corporate overhead expenses incurred in the ordinary course of business and to pay a dividend to Parent. Parent made payments to purchase term loans and reduced the principal balance of its Parent Term Loan Facility from $466,936,000 to $193,290,000 with a portion of the dividend proceeds. During fiscal 2009, we paid two cash dividends totaling $3,349,000 to Parent and borrowed $185,000,000 under AMCE's senior secured credit facility. During fiscal 2008, AMCE made principal payments of $26,295,000 on its corporate borrowings, capital and financing lease obligation, and mortgage obligations. AMCE also paid two cash dividends to Holdings totaling $293,551,000, and Holdings paid cash dividends to Parent totaling $270,588,000.
On June 9, 2009, we issued $600,000,000 aggregate principal amount of 8.75% Senior Notes due 2019. Proceeds from the issuance of the notes were $585,492,000, and deferred financing costs paid related to the issuance of the notes were $16,259,000 during the fiscal year ended April 1, 2010.
During the fiscal year ended April 1, 2010, we made principal payments of $250,000,000 in connection with a cash tender offer and redemption of all of our then outstanding 85/8% Senior Notes due 2012, and we repaid $185,000,000 of revolving credit borrowings under our senior secured credit facility.
43
Commitments and Contingencies
Minimum annual cash payments required under existing capital and financing lease obligations, maturities of corporate borrowings, future minimum rental payments under existing operating leases, FF&E and leasehold purchase provisions, entry into a definitive agreement for the acquisition of Kerasotes, ADA related betterments and pension funding that have initial or remaining non-cancelable terms in excess of one year as of April 1, 2010 are as follows:
(In thousands)
|
Minimum Capital and Financing Lease Payments |
Principal Amount of Corporate Borrowings(1) |
Interest Payments on Corporate Borrowings(2) |
Minimum Operating Lease Payments |
Acquisitions and Capital Related Betterments(3) |
Pension Funding(4) |
Total Commitments |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
$ | 9,225 | $ | 6,500 | $ | 153,521 | $ | 390,558 | $ | 293,234 | $ | 5,753 | $ | 858,791 | ||||||||
2012 |
8,023 | 6,500 | 153,391 | 392,317 | 10,323 | 976 | 571,530 | |||||||||||||||
2013 |
7,055 | 609,375 | 151,250 | 380,224 | | | 1,147,904 | |||||||||||||||
2014 |
6,706 | 300,000 | 139,145 | 353,535 | | | 799,386 | |||||||||||||||
2015 |
6,728 | 240,795 | 99,086 | 350,352 | | | 696,961 | |||||||||||||||
Thereafter |
61,900 | 925,000 | 252,917 | 2,016,646 | | | 3,256,463 | |||||||||||||||
Total |
$ | 99,637 | $ | 2,088,170 | $ | 949,310 | $ | 3,883,632 | $ | 303,557 | $ | 6,729 | $ | 7,331,035 | ||||||||
- (1)
- Represents
cash requirements for the payment of principal on corporate borrowings. Total amount does not equal carrying amount due to unamortized discounts
on issuance.
- (2)
- Interest
expense on the term loan portion of our senior secured credit facility was estimated at 2.00% based upon the interest rate in effect as of
April 1, 2010.
- (3)
- Includes
committed capital expenditures and acquisitions including the estimated cost of ADA related betterments. Does not include planned, but
non-committed capital expenditures. Our cash outlays for the acquisition of Kerasotes are anticipated to be $275,000,000, subject to working capital and other purchase price adjustments.
- (4)
- Historically we fund our pension plan such that the plan is 90% funded. The plan has been frozen effective December 31, 2006. The funding requirement has been estimated based upon our expected funding amount. Also included are payments due under a withdrawal liability for a union sponsored plan. The retiree health plan is not funded.
As discussed in Note 9Income Taxes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, we adopted accounting for uncertainty in income taxes per the guidance in ASC 740. At April 1, 2010, our company has recognized an obligation for unrecognized benefits of $34,500,000. There are currently unrecognized tax benefits which we anticipate will be resolved in the next 12 months; however, we are unable at this time to estimate what the impact on our effective tax rate will be. Any amounts related to these items are not included in the table above.
Fee Agreement
In connection with the holdco merger, on June 11, 2007, Parent, Holdings, AMCE and the Sponsors entered into a Fee Agreement (the "Management Fee Agreement"), which replaced the December 23, 2004 fee agreement among Holdings, AMCE and the Sponsors, as amended and restated on January 26, 2006 (the "original fee agreement"). The Management Fee Agreement provides for an annual management fee of $5,000,000, payable quarterly and in advance to our Sponsors, on a pro rata basis, until the twelfth anniversary from December 23, 2004, as well as reimbursements for each
44
Sponsor's respective out-of-pocket expenses in connection with the management services provided under the Management Fee Agreement.
In addition, the Management Fee Agreement provides for reimbursements by AMCE to the Sponsors for their out-of-pocket expenses, and by AMCE to Parent of up to $3,500,000 for fees payable by Parent in any single fiscal year in order to maintain Parents' and AMCE's corporate existence, corporate overhead expenses and salaries or other compensation of certain employees.
Upon the consummation of a change in control transaction or an IPO, the Sponsors will receive, in lieu of quarterly payments of the annual management fee, an automatic fee equal to the net present value of the aggregate annual management fee that would have been payable to the Sponsors during the remainder of the term of the fee agreement (assuming a twelve year term from the date of the original fee agreement), calculated using the treasury rate having a final maturity date that is closest to the twelfth anniversary of the date of the original fee agreement date. As of April 1, 2010, we estimate this amount would be $29,190,000 should a change in control transaction or an IPO occur.
The Management Fee Agreement also provides that AMCE will indemnify the Sponsors against all losses, claims, damages and liabilities arising in connection with the management services provided by the Sponsors under the fee agreement.
Investment in NCM
As discussed in Cash Flows From Investing Activities, we hold an investment in 18.23% of NCM accounted for following the equity method. The fair market value of these shares is approximately $334,629,000 as of April 1, 2010. Because we have little tax basis in these units and because the sale of all these units would require us to report taxable income of $468,686,000 including distributions received from NCM that were previously deferred, we expect that any sales of these units would be made ratably over a period of time to most efficiently manage any related tax liability. We have available net operating loss carryforwards which could reduce any related tax liability.
Impact of Inflation
Historically, the principal impact of inflation and changing prices upon us has been to increase the costs of the construction of new theatres, the purchase of theatre equipment, rent and the utility and labor costs incurred in connection with continuing theatre operations. Film exhibition costs, our largest cost of operations, are customarily paid as a percentage of admissions revenues and hence, while the film exhibition costs may increase on an absolute basis, the percentage of admissions revenues represented by such expense is not directly affected by inflation. Except as set forth above, inflation and changing prices have not had a significant impact on our total revenues and results of operations.
New Accounting Pronouncements
See Note 1The Company and Significant Accounting Policies to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further information regarding recently issued accounting standards.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to various market risks including interest rate risk and foreign currency exchange rate risk.
Market risk on variable-rate financial instruments. We maintain an $850,000,000 senior secured credit facility, comprised of a $200,000,000 revolving credit facility and a $650,000,000 term loan facility, which permits borrowings at a rate equal to an applicable margin plus, at our option, either a base rate or LIBOR. Increases in market interest rates would cause interest expense to increase and earnings
45
before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. We had no borrowings on our revolving credit facility as of April 1, 2010 and had $622,375,000 outstanding under the term loan facility on April 1, 2010. A 100 basis point change in market interest rates would have increased or decreased interest expense on the senior secured credit facility by $6,549,000 during the fifty-two weeks ended April 1, 2010.
Market risk on fixed-rate financial instruments. Included in long-term debt are $325,000,000 of our Notes due 2016, $300,000,000 of our Notes due 2014, $600,000,000 of our Notes due 2019, and $240,795,000 of our Discount Notes due 2014. Increases in market interest rates would generally cause a decrease in the fair value of the Notes due 2016, Notes due 2014, Notes due 2019, and Discount Notes due 2014 and a decrease in market interest rates would generally cause an increase in fair value of the Notes due 2016, Notes due 2014, Notes due 2019, and Discount Notes due 2014.
Foreign currency exchange rates. We currently operate theatres in Canada, France and the United Kingdom. As a result of these operations, we have assets, liabilities, revenues and expenses denominated in foreign currencies. The strengthening of the U.S. dollar against the respective currencies causes a decrease in the carrying values of assets, liabilities, revenues and expenses denominated in such foreign currencies and the weakening of the U.S. dollar against the respective currencies causes an increase in the carrying values of these items. The increases and decreases in assets, liabilities, revenues and expenses are included in accumulated other comprehensive income. Changes in foreign currency exchange rates also impact the comparability of earnings in these countries on a year-to-year basis. As the U.S. dollar strengthens, comparative translated earnings decrease, and as the U.S. dollar weakens comparative translated earnings from foreign operations increase. A 10% increase in the value of the U.S. dollar against all foreign currencies of countries where we currently operate theatres would decrease losses before income taxes by approximately $722,000 and decrease accumulated other comprehensive loss by approximately $8,345,000, respectively, as of April 1, 2010. A 10% decrease in the value of the U.S. dollar against all foreign currencies of countries where we currently operate theatres would increase losses before income taxes by approximately $883,000 and increase accumulated other comprehensive loss by approximately $10,199,000, respectively, as of April 1, 2010.
46
Item 8. Financial Statements and Supplementary Data
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Marquee Holdings Inc.
TO THE STOCKHOLDER OF MARQUEE HOLDINGS INC.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 12a-15(f) of the Exchange Act. With our participation, an evaluation of the effectiveness of internal control over financial reporting was conducted as of April 1, 2010, based on the framework and criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of April 1, 2010. This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Chief Executive Officer
and President
Executive Vice President and
Chief Financial Officer
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Stockholder
Marquee Holdings Inc.:
We have audited the accompanying consolidated balance sheet of Marquee Holdings Inc. (and subsidiaries) as of April 1, 2010, and the related consolidated statements of operations, stockholder's equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Marquee Holdings Inc. (and subsidiaries) as of April 1, 2010, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its accounting treatment for business combinations due to the adoption of new accounting requirements issued by the FASB, as of April 3, 2009.
/s/ KPMG LLP | ||
Kansas City, Missouri June 14, 2010 |
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF MARQUEE HOLDINGS INC.:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholder's equity and of cash flows present fairly, in all material respects, the financial position of Marquee Holdings Inc. and its subsidiaries (the "Company") at April 2, 2009, and the results of their operations and their cash flows for the 52 week period ended April 2, 2009 and the 53 week period ended April 3, 2008, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 9, the Company changed the manner in which it accounts for uncertain tax positions in fiscal 2008.
/s/ PricewaterhouseCoopers LLP
Kansas
City, Missouri
May 26, 2009
49
Marquee Holdings Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues |
||||||||||||
Admissions |
$ | 1,711,853 | $ | 1,580,328 | $ | 1,615,606 | ||||||
Concessions |
646,716 | 626,251 | 648,330 | |||||||||
Other theatre |
59,170 | 58,908 | 69,108 | |||||||||
Total revenues |
2,417,739 | 2,265,487 | 2,333,044 | |||||||||
Costs and Expenses |
||||||||||||
Film exhibition costs |
928,632 | 842,656 | 860,241 | |||||||||
Concession costs |
72,854 | 67,779 | 69,597 | |||||||||
Operating expense |
610,774 | 576,022 | 572,740 | |||||||||
Rent |
440,664 | 448,803 | 439,389 | |||||||||
General and administrative: |
||||||||||||
Merger, acquisition and transaction costs |
2,383 | 652 | 6,372 | |||||||||
Management fee |
5,000 | 5,000 | 5,000 | |||||||||
Other |
57,964 | 53,747 | 39,177 | |||||||||
Depreciation and amortization |
188,342 | 201,413 | 222,111 | |||||||||
Impairment of long-lived assets |
3,765 | 73,547 | 8,933 | |||||||||
Total costs and expenses |
2,310,378 | 2,269,619 | 2,223,560 | |||||||||
Other expense (income) |
||||||||||||
Other income |
(2,559 | ) | (14,139 | ) | (12,932 | ) | ||||||
Interest expense |
||||||||||||
Corporate borrowings |
156,420 | 145,657 | 160,902 | |||||||||
Capital and financing lease obligations |
5,652 | 5,990 | 6,505 | |||||||||
Equity in earnings of non-consolidated entities |
(30,300 | ) | (24,823 | ) | (43,019 | ) | ||||||
Investment income |
(240 | ) | (1,731 | ) | (23,923 | ) | ||||||
Total other expense |
128,973 | 110,954 | 87,533 | |||||||||
Earnings (loss) from continuing operations before income taxes |
(21,612 | ) | (115,086 | ) | 21,951 | |||||||
Income tax provision (benefit) |
(68,800 | ) | 5,800 | 1,020 | ||||||||
Earnings (loss) from continuing operations |
47,188 | (120,886 | ) | 20,931 | ||||||||
Earnings (loss) from discontinued operations, net of income taxes |
(7,534 | ) | 9,728 | 1,802 | ||||||||
Net earnings (loss) |
$ | 39,654 | $ | (111,158 | ) | $ | 22,733 | |||||
See Notes to Consolidated Financial Statements.
50
Marquee Holdings Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
April 1, 2010 |
April 2, 2009 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Assets |
|||||||||
Current assets: |
|||||||||
Cash and equivalents |
$ | 497,948 | $ | 536,580 | |||||
Receivables, net of allowance for doubtful accounts of $2,103 and $1,564 |
25,539 | 29,782 | |||||||
Other current assets |
72,919 | 80,526 | |||||||
Total current assets |
596,406 | 646,888 | |||||||
Property, net |
863,532 | 964,668 | |||||||
Intangible assets, net |
148,432 | 162,366 | |||||||
Goodwill |
1,836,731 | 1,836,731 | |||||||
Other long-term assets |
238,103 | 146,088 | |||||||
Total assets |
$ | 3,683,204 | $ | 3,756,741 | |||||
Liabilities and Stockholder's Equity |
|||||||||
Current liabilities: |
|||||||||
Accounts payable |
$ | 175,142 | $ | 155,553 | |||||
Accrued expenses and other liabilities |
143,274 | 102,070 | |||||||
Deferred revenues and income |
125,842 | 121,628 | |||||||
Current maturities of corporate borrowings and capital and financing lease obligations |
10,463 | 9,923 | |||||||
Total current liabilities |
454,721 | 389,174 | |||||||
Corporate borrowings |
2,067,149 | 1,922,236 | |||||||
Capital and financing lease obligations |
53,323 | 57,286 | |||||||
Deferred revenues for exhibitor services agreement |
252,322 | 253,164 | |||||||
Other long-term liabilities |
309,591 | 308,703 | |||||||
Total liabilities |
3,137,106 | 2,930,563 | |||||||
Commitments and contingencies |
|||||||||
Stockholder's equity: |
|||||||||
Common Stock, 1 share issued with 1¢ par value |
| | |||||||
Additional paid-in capital |
747,206 | 1,046,703 | |||||||
Accumulated other comprehensive income (loss) |
(3,176 | ) | 17,061 | ||||||
Accumulated deficit |
(197,932 | ) | (237,586 | ) | |||||
Total stockholder's equity |
546,098 | 826,178 | |||||||
Total liabilities and stockholder's equity |
$ | 3,683,204 | $ | 3,756,741 | |||||
See Notes to Consolidated Financial Statements.
51
Marquee Holdings Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: |
||||||||||||
Net earnings (loss) |
$ | 39,654 | $ | (111,158 | ) | $ | 22,733 | |||||
Adjustments to reconcile net earnings (loss) to cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
188,342 | 222,483 | 251,194 | |||||||||
Impairment of long-lived assets |
3,765 | 73,547 | 8,933 | |||||||||
Deferred income taxes |
(66,500 | ) | 400 | (2,800 | ) | |||||||
Write-off of issuance costs related to early extinguishment of debt |
3,468 | | | |||||||||
Loss (gain) on disposition of Cinemex |
7,534 | (14,772 | ) | | ||||||||
Excess distributions/(Equity in earnings losses from investments, net of distributions) |
5,862 | 6,600 | (18,354 | ) | ||||||||
Change in assets and liabilities: |
||||||||||||
Receivables |
(2,130 | ) | 9,296 | 10,128 | ||||||||
Other assets |
2,323 | (2,861 | ) | (40,379 | ) | |||||||
Accounts payable |
13,383 | 20,423 | 5,906 | |||||||||
Accrued expenses and other liabilities |
40,524 | (24,130 | ) | (23,166 | ) | |||||||
Other, net |
(7,274 | ) | (11,732 | ) | (12,519 | ) | ||||||
Net cash provided by operating activities |
228,951 | 168,096 | 201,676 | |||||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
(97,011 | ) | (121,456 | ) | (171,100 | ) | ||||||
Purchase of digital projection equipment for sale/leaseback |
(6,784 | ) | | | ||||||||
Proceeds from sale/leaseback of digital projection equipment |
6,570 | | | |||||||||
Proceeds on disposition of Fandango |
| 2,383 | 17,977 | |||||||||
Proceeds on disposition of HGCSA |
| | 28,682 | |||||||||
Proceeds on disposition of Cinemex, net of cash disposed |
4,315 | 224,378 | | |||||||||
LCE screen integration |
(81 | ) | (4,700 | ) | (11,201 | ) | ||||||
Other, net |
(3,346 | ) | 320 | (3,763 | ) | |||||||
Net cash provided by (used in) investing activities |
(96,337 | ) | 100,925 | (139,405 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of senior notes due 2019 |
585,492 | | | |||||||||
Repurchase of senior notes due 2012 |
(250,000 | ) | | | ||||||||
Payments on Term Loan B |
(6,500 | ) | (6,500 | ) | (8,125 | ) | ||||||
Principal payments under mortgages and capital and financing lease obligations |
(3,423 | ) | (3,452 | ) | (6,070 | ) | ||||||
Deferred financing costs |
(16,436 | ) | (525 | ) | (4,265 | ) | ||||||
Change in construction payables |
6,714 | (9,331 | ) | 13,586 | ||||||||
Borrowing (repayment) under Revolving credit facility |
(185,000 | ) | 185,000 | | ||||||||
(Repayment of) borrowing under Cinemex credit facility |
| | (12,100 | ) | ||||||||
Dividends paid to Parent |
(300,881 | ) | (3,349 | ) | (270,588 | ) | ||||||
Proceeds from financing lease obligations |
| | 16,872 | |||||||||
Net cash provided by (used in) financing activities |
(170,034 | ) | 161,843 | (270,690 | ) | |||||||
Effect of exchange rate changes on cash and equivalents |
(1,212 | ) | (3,001 | ) | (2,397 | ) | ||||||
Net increase (decrease) in cash and equivalents |
(38,632 | ) | 427,863 | (210,816 | ) | |||||||
Cash and equivalents at beginning of year |
536,580 | 108,717 | 319,533 | |||||||||
Cash and equivalents at end of year |
$ | 497,948 | $ | 536,580 | $ | 108,717 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||||||
Cash paid (refunded) during the period for: |
||||||||||||
Interest (including amounts capitalized of $14, $415, and $1,114) |
$ | 148,018 | $ | 154,830 | $ | 161,303 | ||||||
Income taxes, net |
(2,033 | ) | 16,731 | 17,064 | ||||||||
Schedule of non-cash investing and financing activities: |
||||||||||||
Assets capitalized under ASC 840-40-05-5 |
$ | | $ | | $ | 4,600 | ||||||
Investment in NCM (See Note 5Investments) |
2,290 | 5,453 | 21,598 | |||||||||
Investment in DCIP (See Note 5Investments) |
21,768 | | |
See Notes to Consolidated Financial Statements.
52
Marquee Holdings Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
|
|
|
Class A-1 Voting Common Stock |
Class A-2 Voting Common Stock |
Class N Nonvoting Common Stock |
Class L-1 Voting Common Stock |
Class L-2 Voting Common Stock |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock | |
Accumulated Other Comprehensive Income (Loss) |
|
|
|||||||||||||||||||||||||||||||||||||||||||||
|
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholder's Equity |
|||||||||||||||||||||||||||||||||||||||||||||||
(In thousands, except share and per share data) |
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
March 29, 2007 through April 1, 2010 |
||||||||||||||||||||||||||||||||||||||||||||||||||
Balance March 29, 2007 |
| $ | | 382,475.00000 | $ | 4 | 382,475.00000 | $ | 4 | 5,128.77496 | $ | | 256,085.61252 | $ | 3 | 256,085.61252 | $ | 3 | $ | 1,314,579 | $ | (3,834 | ) | $ | (143,706 | ) | $ | 1,167,053 | ||||||||||||||||||||||
Comprehensive earnings: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings |
| | | | | | | | | | | | | | 22,733 | 22,733 | ||||||||||||||||||||||||||||||||||
ASC 740 (formerly FIN 48) adoption adjustment |
| | | | | | | | | | | | | | (5,373 | ) | (5,373 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | | | | | | (1,708 | ) | | (1,708 | ) | ||||||||||||||||||||||||||||||||
Change in fair value of cash flow hedges |
| | | | | | | | | | | | | (5,507 | ) | | (5,507 | ) | ||||||||||||||||||||||||||||||||
Losses on interest rate swaps reclassified to interest expense corporate borrowings |
| | | | | | | | | | | | | 1,523 | | 1,523 | ||||||||||||||||||||||||||||||||||
Pension and other benefit adjustments |
| | | | | | | | | | | | | 6,532 | | 6,532 | ||||||||||||||||||||||||||||||||||
Unrealized loss on marketable securities |
| | | | | | | | | | | | | (674 | ) | | (674 | ) | ||||||||||||||||||||||||||||||||
Comprehensive earnings |
| | | | | | | | | | | | 17,526 | |||||||||||||||||||||||||||||||||||||
Stock-based compensationoptions |
| | | | | | | | | | | | 3,439 | | | 3,439 | ||||||||||||||||||||||||||||||||||
Dividends paid to AMC Entertainment Holdings, Inc. |
| | | | | | | | | | | | (270,588 | ) | | | (270,588 | ) | ||||||||||||||||||||||||||||||||
Conversion of stock upon creation of AMC Entertainment Holdings, Inc. |
1 | | (382,475.00000 | ) | (4 | ) | (382,475.00000 | ) | (4 | ) | (5,128.77496 | ) | | (256,085.61252 | ) | (3 | ) | (256,085.61252 | ) | (3 | ) | | | | (14 | ) | ||||||||||||||||||||||||
Balance April 3, 2008 |
1 | | | | | | | | | | | | 1,047,430 | (3,668 | ) | (126,346 | ) | 917,416 | ||||||||||||||||||||||||||||||||
Comprehensive earnings (loss): |
||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | | | | (111,158 | ) | (111,158 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | | | | | | 25,558 | | 25,558 | ||||||||||||||||||||||||||||||||||
Change in fair value of cash flow hedges |
| | | | | | | | | | | | | (1,833 | ) | | (1,833 | ) | ||||||||||||||||||||||||||||||||
Losses on interest rate swaps reclassified to interest expense corporate borrowings |
| | | | | | | | | | | | | 5,230 | | 5,230 | ||||||||||||||||||||||||||||||||||
Pension and other benefit adjustments |
| | | | | | | | | | | | | (8,117 | ) | | (8,117 | ) | ||||||||||||||||||||||||||||||||
Unrealized loss on marketable securities |
| | | | | | | | | | | | | (109 | ) | | (109 | ) | ||||||||||||||||||||||||||||||||
Comprehensive loss |
| | | | | | | | | | | | | | | (90,429 | ) | |||||||||||||||||||||||||||||||||
ASC 715 (formerly SFAS 158) adoption adjustment |
| | | | | | | | | | | | | | (82 | ) | (82 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensationoptions |
| | | | | | | | | | | | 2,622 | | | 2,622 | ||||||||||||||||||||||||||||||||||
Dividends paid to AMC Entertainment Holdings, Inc. |
| | | | | | | | | | | | (3,349 | ) | | | (3,349 | ) | ||||||||||||||||||||||||||||||||
Balance April 2, 2009 |
1 | | | | | | | | | | | | 1,046,703 | 17,061 | (237,586 | ) | 826,178 |
53
Marquee Holdings Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (Continued)
|
|
|
Class A-1 Voting Common Stock |
Class A-2 Voting Common Stock |
Class N Nonvoting Common Stock |
Class L-1 Voting Common Stock |
Class L-2 Voting Common Stock |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock | |
Accumulated Other Comprehensive Income (Loss) |
|
|
|||||||||||||||||||||||||||||||||||||||||||||
|
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholder's Equity |
|||||||||||||||||||||||||||||||||||||||||||||||
(In thousands, except share and per share data) |
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
Comprehensive earnings: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings |
| | | | | | | | | | | | | | 39,654 | 39,654 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | | | | | | (13,021 | ) | | (13,021 | ) | ||||||||||||||||||||||||||||||||
Change in fair value of cash flow hedges |
| | | | | | | | | | | | | (6 | ) | | (6 | ) | ||||||||||||||||||||||||||||||||
Losses on interest rate swaps reclassified to interest expense corporate borrowings |
| | | | | | | | | | | | | 558 | | 558 | ||||||||||||||||||||||||||||||||||
Pension and other benefit adjustments |
| | | | | | | | | | | | | (8,499 | ) | | (8,499 | ) | ||||||||||||||||||||||||||||||||
Unrealized gain on marketable securities |
| | | | | | | | | | | | | 731 | | 731 | ||||||||||||||||||||||||||||||||||
Comprehensive earnings |
| | | | | | | | | | | | | | | 19,417 | ||||||||||||||||||||||||||||||||||
Stock-based compensationoptions |
| | | | | | | | | | | | 1,384 | | | 1,384 | ||||||||||||||||||||||||||||||||||
Dividends paid to AMC Entertainment Holdings, Inc. |
| | | | | | | | | | | | (300,881 | ) | | | (300,881 | ) | ||||||||||||||||||||||||||||||||
Balance April 1, 2010 |
1 | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | $ | 747,206 | $ | (3,176 | ) | $ | (197,932 | ) | $ | 546,098 | ||||||||||||||||||||||
See Notes to Consolidated Financial Statements
54
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Marquee Holdings Inc. ("Holdings") is an investment vehicle owned through AMC Entertainment Holdings, Inc. ("Parent") by J.P. Morgan Partners, LLC ("JPMP"), Apollo Management, L.P. and certain related investment funds ("Apollo") and affiliates of Bain Capital Partners ("Bain"), The Carlyle Group ("Carlyle") and Spectrum Equity Investors ("Spectrum") (collectively with JPMP and Apollo the "Sponsors"). Holdings was formed for the purpose of acquiring AMC Entertainment Inc. ("AMCE") pursuant to a definitive merger agreement approved by AMCE's Board of Directors on July 22, 2004. Holdings is a holding company with no operations of its own and it has one direct subsidiary, AMCE.
AMCE, through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. ("AMC") and its subsidiaries' and AMC Entertainment International, Inc. ("AMCEI") and its subsidiaries (collectively with Holdings and AMCE, unless the context otherwise requires, the "Company"), is principally involved in the theatrical exhibition business and owns, operates or has interests in theatres located in the United States and Canada, China (Hong Kong), France and the United Kingdom. The Company discontinued its operations in Spain and Portugal during the third quarter of fiscal 2007 and discontinued its operations in Mexico during the third quarter of fiscal 2009. The Company's theatrical exhibition business is conducted through AMC and its subsidiaries and AMCEI.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to: (1) Impairments, (2) Goodwill, (3) Income Taxes, (4) Pension and Postretirement Assumptions and (5) Film Exhibition Costs. Actual results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include the accounts of Marquee Holdings Inc. and all subsidiaries, as discussed above. All significant intercompany balances and transactions have been eliminated in consolidation. There are no noncontrolling (minority) interests in the Company's consolidated subsidiaries; consequently, all of its stockholder's equity, net earnings (loss) and comprehensive earnings (loss) for the periods presented are attributable to controlling interests.
Fiscal Year: The Company has a 52/53 week fiscal year ending on the Thursday closest to the last day of March. Both fiscal 2010 and fiscal 2009 reflect 52 week periods, while fiscal 2008 reflects a 53 week period.
Revenues: Revenues are recognized when admissions and concessions sales are received at the theatres. The Company defers 100% of the revenue associated with the sales of gift cards and packaged tickets until such time as the items are redeemed or management believes future redemption to be remote. During fiscal 2008, management changed its estimate of when it believes future redemption to be remote for discounted theatre tickets from 24 months from the date of sale to 18 months from the date of sale. During fiscal 2009, management changed its estimate of redemption rates for packaged tickets. Management believes the 18 month estimate and revised redemption rates are supported by its continued development of redemption history and that they are reflective of management's current best estimate. These changes in estimate had the effect of increasing other theatre revenues and earnings
55
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
from continuing operations by approximately $4,200,000 and $2,600,000, respectively, during fiscal 2008 and by approximately $2,600,000 and $1,600,000, respectively, during fiscal 2009. During the periods ended April 1, 2010, April 2, 2009, and April 3, 2008, the Company recognized $13,591,000, $14,139,000, and $11,289,000 of income, respectively, related to the derecognition of gift card liabilities where management believes future redemption to be remote which was recorded in other expense (income) in the Consolidated Statements of Operations.
Film Exhibition Costs: Film exhibition costs are accrued based on the applicable box office receipts and estimates of the final settlement to the film licenses. Film exhibition costs include certain advertising costs. As of April 1, 2010 and April 2, 2009, the Company recorded film payables of $78,499,000 and $60,286,000, respectively, which is included in accounts payable in the accompanying consolidated balance sheets.
Concession Costs: The Company records payments from vendors as a reduction of concession costs when earned unless it is determined that the payment was for the fair value of services provided to the vendor where the benefit to the vendor is sufficiently separable from the Company's purchase of the vendor's products. In the latter instance, revenue is recorded when and if the consideration received is in excess of fair value, then the excess is recorded as a reduction of concession costs. In addition, if the payment from the vendor is for a reimbursement of expenses, then those expenses are offset.
Screen Advertising: On March 29, 2005, the Company and Regal Entertainment Group combined their respective cinema screen advertising businesses into a new joint venture company called National CineMedia, LLC ("NCM") and on July 15, 2005, Cinemark Holdings, Inc. ("Cinemark") joined NCM, as one of the founding members. NCM engages in the marketing and sale of cinema advertising and promotions products; business communications and training services; and the distribution of digital alternative content. The Company records its share of on-screen advertising revenues generated by NCM in other theatre revenues.
Loyalty Program: The Company records the estimated incremental cost of providing free concession items for awards under its Moviewatcher loyalty program when the awards are earned. Historically, the costs of these awards have not been significant.
Advertising Costs: The Company expenses advertising costs as incurred and does not have any direct-response advertising recorded as assets. Advertising costs were $9,103,000, $18,121,000 and $20,677,000 for the periods ended April 1, 2010, April 2, 2009 and April 3, 2008, respectively.
Cash and Equivalents: Under the Company's cash management system, checks issued but not presented to banks frequently result in book overdraft balances for accounting purposes and are classified within accounts payable in the balance sheet. The change in book overdrafts are reported as a component of operating cash flows for accounts payable as they do not represent bank overdrafts. The amount of these checks included in accounts payable as of April 1, 2010 and April 2, 2009 was $60,943,000 and $55,302,000, respectively. All highly liquid debt instruments and investments purchased with an original maturity of three months or less are classified as cash equivalents.
56
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangible Assets: Intangible assets are recorded at cost or fair value, in the case of intangible assets resulting from acquisitions, and are comprised of lease rights, amounts assigned to theatre leases acquired under favorable terms, customer relationship intangible assets, management contracts and trademarks, each of which are being amortized on a straight-line basis over the estimated remaining useful lives of the assets except for a customer relationship intangible asset and the AMC Trademark intangible asset associated with the merger with Marquee. The customer relationship intangible asset is amortized over eight years based upon the pattern in which the economic benefits of the intangible asset are expected to be consumed or otherwise used up. This pattern indicates that over 2/3rds of the cash flow generated from the asset is derived during the first five years. The AMC Trademark intangible asset is considered an indefinite lived intangible asset, and therefore is not amortized but rather evaluated for impairment annually. In fiscal 2009, the Company impaired a favorable lease intangible asset in the amount of $1,364,000.
Investments: The Company accounts for its investments in non-consolidated entities using either the cost or equity methods of accounting as appropriate, and has recorded the investments within other long-term assets in its consolidated balance sheets and records equity in earnings and losses of those entities accounted for following the equity method of accounting within equity in (earnings) losses of non-consolidated entities in its consolidated statements of operations. The Company follows the guidance in ASC 323-30-35-3, which prescribes the use of the equity method for investments that are not considered to be minor in limited liability companies that maintain specific ownership accounts. The Company classifies gains and losses on sales of and changes of interest in equity method investments within equity in (earnings) losses of non-consolidated entities, and classifies gains and losses on sales of investments accounted for using the cost method in investment income. As of April 1, 2010, the Company holds an 18.23% interest in NCM, a joint venture that markets and sells cinema advertising and promotions; a 26% interest in Movietickets.com, a joint venture that provides moviegoers with a way to buy movie tickets online, access local showtime information, view trailers and read reviews; a 29.0% interest in Digital Cinema Implementation Partners LLC, a joint venture charged with implementing digital cinema in the Company's theatres; a 50% interest in three theatres that are accounted for following the equity method of accounting; and a 50% interest in Midland Empire Partners, LLC, a joint venture developing live and film entertainment venues in the Power & Light District of Kansas City, Missouri. In February 2007, the Company recorded a change of interest gain of $132,622,000 and received distributions in excess of its investment in NCM related to the redemption of preferred and common units of $106,188,000. Future equity in earnings from NCM will not be recognized until cumulative earnings exceed the redemption gain or cash distributions of earnings are received. At April 1, 2010, the Company's recorded investments are less than its proportional ownership of the underlying equity in these entities by approximately $2,868,000, excluding NCM. These differences will be amortized to equity in earnings or losses over the estimated useful lives of the related assets or evaluated for impairment. Included in equity in earnings of non-consolidated entities for the fifty-two weeks ended April 2, 2009 is an impairment charge of $2,742,000 related to a theatre joint venture investment. The decline in the fair market value of the investment was considered other than temporary due to competitive theatre builds.
Goodwill: Goodwill represents the excess of cost over fair value of net tangible and identifiable intangible assets related to acquisitions. The Company is not required to amortize goodwill as a charge
57
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
to earnings; however, the Company is required to conduct an annual review of goodwill for impairment.
The Company's recorded goodwill was $1,836,731,000 as of both April 1, 2010 and April 2, 2009. The Company evaluates goodwill and its trademark for impairment annually as of the beginning of the fourth fiscal quarter or more frequently as specific events or circumstances dictate. The Company's goodwill is recorded in its Theatrical Exhibition operating segment which is also the reporting unit for purposes of evaluating recorded goodwill for impairment. If the carrying value of the reporting unit exceeds its fair value the Company is required to reallocate the fair value of the reporting unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The Company determines fair value by using an enterprise valuation methodology determined by applying multiples to cash flow estimates less net indebtedness, which the Company believes is an appropriate method to determine fair value. There is considerable management judgment with respect to cash flow estimates and appropriate multiples and discount rates to be used in determining fair value and such management estimates fall under Level 3 within the fair value measurement hierarchy, see Note 14Fair Value Measurements.
The Company performed its annual impairment analysis during the fourth quarter of fiscal 2010. The fair value of the Company's Theatrical Exhibition operations exceed the carrying value by more than 10% and management does not believe that impairment is probable.
Other Long-term Assets: Other long-term assets are comprised principally of investments in partnerships and joint ventures, costs incurred in connection with the issuance of debt securities, which are being amortized to interest expense over the respective lives of the issuances, and capitalized computer software, which is amortized over the estimated useful life of the software.
Leases: The majority of the Company's operations are conducted in premises occupied under lease agreements with initial base terms ranging generally from 15 to 20 years, with certain leases containing options to extend the leases for up to an additional 20 years. The Company does not believe that exercise of the renewal options are reasonably assured at the inception of the lease agreements and, therefore, considers the initial base term as the lease term. Lease terms vary but generally the leases provide for fixed and escalating rentals, contingent escalating rentals based on the Consumer Price Index not to exceed certain specified amounts and contingent rentals based on revenues with a guaranteed minimum.
The Company's lease terms commence at the time it obtains "control and access" to the leased premises which is generally a date prior to the "lease commencement date" contained in the lease agreements.
The Company records rent expense for its operating leases on a straight-line basis over the base term of the lease agreements commencing with the date the Company has "control and access" to the leased premises, which is generally a date prior to the "lease commencement date" in the lease agreement. Rent expense related to any "rent holiday" is recorded as operating expense, until construction of the leased premises is complete and the premises are ready for their intended use. Rent charges upon completion of the leased premises subsequent to the theatre opening date are expensed as a component of rent expense.
58
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Occasionally, the Company will receive amounts from developers in excess of the costs incurred related to the construction of the leased premises. The Company records the excess amounts received from developers as deferred rent and amortizes the balance as a reduction to rent expense over the base term of the lease agreement.
The Company evaluates the classification of its leases following the guidance in ASC 540-10-25. Leases that qualify as capital leases are recorded at the present value of the future minimum rentals over the base term of the lease using the Company's incremental borrowing rate. Capital lease assets are assigned an estimated useful life at the inception of the lease that generally correspond with the base term of the lease.
Occasionally, the Company is responsible for the construction of leased theatres and for paying project costs that are in excess of an agreed upon amount to be reimbursed from the developer. ASC 840-40-05-5 requires the Company to be considered the owner (for accounting purposes) of these types of projects during the construction period and therefore is required to account for these projects as sale and leaseback transactions. As a result, the Company has recorded $30,956,000 and $31,970,000 as financing lease obligations for failed sale leaseback transactions on its Consolidated Balance Sheets related to these types of projects as of April 1, 2010 and April 2, 2009, respectively.
Sale and Leaseback Transactions: The Company accounts for the sale and leaseback of real estate assets in accordance with ASC 840-40. Losses on sale leaseback transactions are recognized at the time of sale if the fair value of the property sold is less than the undepreciated cost of the property. Gains on sale and leaseback transactions are deferred and amortized over the remaining base term of the lease.
Impairment of Long-lived Assets: The Company reviews long-lived assets, including definite-lived intangibles, investments in non-consolidated subsidiaries accounted for under the equity method, marketable equity securities and internal use software for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company identifies impairments related to internal use software when management determines that the remaining carrying value of the software will not be realized through future use. The Company reviews internal management reports on a quarterly basis as well as monitors current and potential future competition in the markets where it operates for indicators of triggering events or circumstances that indicate potential impairment of individual theatre assets. The Company evaluates theatres using historical and projected data of theatre level cash flow as its primary indicator of potential impairment and considers the seasonality of its business when making these evaluations. The Company performs its annual impairment analysis during the fourth quarter because Christmas and New Year's holiday results comprise a significant portion of the Company's operating cash flow, and the actual results from this period, which are available during the fourth quarter of each fiscal year, are an integral part of the impairment analysis. Under these analyses, if the sum of the estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying value of the asset exceeds its estimated fair value. Assets are evaluated for impairment on an individual theatre basis, which management believes is the lowest level for which there are identifiable cash flows. The impairment evaluation is based on the estimated cash flows from continuing use until the expected disposal date or the fair value of furniture,
59
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
fixtures and equipment. The expected disposal date does not exceed the remaining lease period unless it is probable the lease period will be extended and may be less than the remaining lease period when the Company does not expect to operate the theatre to the end of its lease term. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows. The fair value of furniture, fixtures and equipment has been determined using similar asset sales and in some instances with the assistance of third party valuation studies. The discount rate used in determining the present value of the estimated future cash flows was based on management's expected return on assets during fiscal 2010.
There is considerable management judgment necessary to determine the estimated future cash flows and fair values of our theatres and other long-lived assets, and, accordingly, actual results could vary significantly from such estimates which fall under Level 3 within the fair value measurement hierarchy, see Note 14Fair Value Measurements. During fiscal 2010, the Company recognized non-cash impairment losses of $3,765,000 related to theatre fixed assets. The Company recognized an impairment loss of $2,330,000 on five theatres with 41 screens (in California, Florida, Maryland, New York and Utah), which was related to property, net. The Company also adjusted the carrying value of undeveloped real estate assets located in Illinois based on a recent appraisal which resulted in an impairment charge of $1,435,000.
Impairment losses in the Consolidated Statements of Operations are included in the following captions:
(In thousands)
|
52 weeks Ended April 1, 2010 |
52 weeks Ended April 2, 2009 |
53 weeks Ended April 3, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Impairment of long-lived assets |
$ | 3,765 | $ | 73,547 | $ | 8,933 | ||||
Equity in (earnings) losses of non-consolidated entities |
| 2,742 | | |||||||
Investment income |
| 1,512 | | |||||||
Total impairment losses |
$ | 3,765 | $ | 77,801 | $ | 8,933 | ||||
Foreign Currency Translation: Operations outside the United States are generally measured using the local currency as the functional currency. Assets and liabilities are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average rates of exchange. The resultant translation adjustments are included in foreign currency translation adjustment, a separate component of accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions, except those intercompany transactions of a long-term investment nature, are included in net earnings (loss).
Stock-based Compensation: Holdings has no stock-based compensation arrangements of its own; however its ultimate parent, AMC Entertainment Holdings, Inc. granted options on 60,243.17873 shares to certain employees during the periods ended March 31, 2005, March 30, 2006, April 2, 2009 and April 1, 2010. Because the employees to whom the options were granted are employed by AMCE, AMCE has reflected the stock-based compensation expense associated with the options within its consolidated statements of operations. The options have a ten year term and the options granted
60
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
during fiscal 2005 step-vest in equal amounts over five years with the final vesting having occurred on December 23, 2009. The options granted during fiscal 2006 step-vest in equal amounts over three years with final vesting having occurred on December 23, 2008. The options granted during fiscal 2009 step-vest in equal amounts over five years with final vesting occurring on March 6, 2014, but vesting may accelerate for certain participants if there is a change of control (as defined in the plan). The options granted during fiscal 2010 step-vest in equal amounts over 5 years with final vesting occurring on May 28, 2014. Holdings has recorded $1,384,000, $2,622,000 and $207,000 of stock-based compensation expense related to these options within general and administrative: other for fiscal 2010, 2009 and 2008, respectively.
The options have been accounted for using the fair value method of accounting for stock-based compensation arrangements, and the Company has valued the options using the Black-Scholes formula and has elected to use the simplified method for estimating the expected term of "plain vanilla" share option grants as it does not have enough historical experience to provide a reasonable estimate.
The following table reflects the weighted average fair value per option granted during each year, as well as the significant weighted average assumptions used in determining fair value using the Black-Scholes option-pricing model:
|
April 1, 2010 | April 2, 2009 | |||||
---|---|---|---|---|---|---|---|
Weighted average fair value on grant date |
$ | 135.71 | $ | 129.46 | |||
Risk-free interest rate |
2.6 | % | 2.6 | % | |||
Expected life (years) |
6.5 | 6.5 | |||||
Expected volatility(1) |
35.0 | % | 35.0 | % | |||
Expected dividend yield |
| |
- (1)
- The Company uses share values of its publicly traded competitor peer group for purposes of calculating volatility.
Income Taxes: The Company accounts for income taxes in accordance with ASC 740-10. Under ASC 740-10, deferred income tax effects of transactions reported in different periods for financial reporting and income tax return purposes are recorded by the liability method. This method gives consideration to the future tax consequences of deferred income or expense items and recognizes changes in income tax laws in the period of enactment. The income statement effect is generally derived from changes in deferred income taxes on the balance sheet.
AMCE entered into a tax sharing agreement with Holdings and Parent under which AMCE agreed to make cash payments to Holdings and Parent to enable it to pay any (i) federal, state or local income taxes to the extent that such income taxes are directly attributable to AMCE or its subsidiaries' income and (ii) franchise taxes and other fees required to maintain Holdings' and Parent's legal existence.
Casualty Insurance: The Company is self-insured for general liability up to $500,000 per occurrence and carries a $400,000 deductible limit per occurrence for workers compensation claims. The Company utilizes actuarial projections of its ultimate losses to calculate its reserves and expense. The actuarial method includes an allowance for adverse developments on known claims and an allowance for claims which have been incurred but which have not yet been reported. As of April 1,
61
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
2010 and April 2, 2009, the Company had recorded casualty insurance reserves of $16,253,000 and $19,179,000, respectively, net of estimated insurance recoveries. The Company recorded expenses related to general liability and workers compensation claims of $11,363,000, $10,537,000 and $14,836,000 for the periods ended April 1, 2010, April 2, 2009 and April 3, 2008, respectively.
New Accounting Pronouncements: In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, Fair Value Measurements and Disclosures (Topic 820)Improving Disclosures about Fair Value Measurements, ("ASU 2010-06"). This Update provides a greater level of disaggregated information and enhanced disclosures about valuation techniques and inputs to fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 and is effective for the Company as of the end of fiscal 2010 except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years and is effective for the Company as of the beginning of fiscal 2011. See Note 11Employee Benefit Plans and Note 14Fair Value Measurements for required disclosures.
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605)Multiple-Deliverable Revenue ArrangementsA Consensus of the FASB Emerging Issues Task Force, ("ASU 2009-13"). This Update provides amendments to the criteria in Subtopic 605-25 that addresses how to separate multiple-deliverable arrangements and how to measure and allocate arrangement consideration to one or more units of accounting. In addition, this amendment significantly expands the disclosure requirements related to multiple-deliverable revenue arrangements. ASU 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and is effective for the Company as of the beginning of fiscal 2012. Early adoption is permitted. The Company is in the process of evaluating the impact ASU 2009-13 will have on its financial statements.
In June 2009, the FASB amended guidance for determining whether an entity is a variable interest entity and requires an analysis to determine whether the variable interest gives a company a controlling financial interest in the variable interest entity. This guidance is included in ASC 810, Consolidation, which will require an ongoing reassessment and eliminates the quantitative approach previously required for determining whether a company is the primary beneficiary. This guidance is effective as of the beginning of the first fiscal year beginning after November 15, 2009 and is effective for the Company in the first quarter of fiscal 2011. The Company is in the process of determining what effects the application of this guidance may have on its consolidated financial position, but does not believe the guidance will have a material impact.
In December 2008, the FASB issued ASC 715-20-65, guidance for employers' disclosures about postretirement benefit plan assets, which requires additional fair value disclosures about employers' defined benefit pension or other postretirement plan assets. Specifically, employers are required to disclose information about how investment allocation decisions are made, the fair value of each major category of plan assets and information about the inputs and valuation techniques used to develop the fair value measurements of plan assets. This guidance is effective for financial statements issued for fiscal years ending after December 15, 2009 and is effective for the Company in fiscal 2010. See Note 11Employee Benefit Plans for required disclosures.
62
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
In December 2007, the FASB revised ASC 805, Business Combinations, which addresses the accounting and disclosure for identifiable assets acquired, liabilities assumed, and noncontrolling interests in a business combination. This statement requires all business combinations completed after the effective date to be accounted for by applying the acquisition method (previously referred to as the purchase method); expands the definition of transactions and events that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in income, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs to be expensed as incurred rather than being capitalized as part of the cost of acquisition. This standard became effective in the first quarter of fiscal 2010. The Company changed its accounting treatment for business combinations on a prospective basis. In addition, the reversal of valuation allowance for deferred tax assets related to business combinations will flow through the Company's income tax provision, on a prospective basis, as opposed to goodwill.
Presentation: Effective April 3, 2009, certain advertising costs related to film exhibition were reclassified from operating expense to film exhibition costs with a conforming reclassification made for the prior year presentation. Effective April 1, 2010, preopening expense, theatre and other closure expense (income), and disposition of assets and other losses (gains) were reclassified to operating expense with a conforming reclassification made for the prior year presentation. Additionally, in the consolidated statements of cash flows, certain operating activities were reclassified to other, net and certain investing activities were reclassified to other, net, with conforming reclassifications made for the prior year presentation. These presentation reclassifications reflect how management evaluates information presented in the statement of operations and consolidated statements of cash flows.
NOTE 2DISCONTINUED OPERATIONS
On December 29, 2008, the Company sold all of its interests in Cinemex, which then operated 44 theatres with 493 screens primarily in the Mexico City Metropolitan Area, to Entretenimiento GM de Mexico S.A. de C.V. The operations and cash flows of the Cinemex theatres have been eliminated from the Company's ongoing operations as a result of the disposal transaction. The purchase price received at the date of the sale and in accordance with the Stock Purchase Agreement was $248,141,000. During the year ended April 1, 2010, the Company received payments of $4,315,000 for purchase price related to tax payments and refunds, and a working capital calculation and post closing adjustments. Additionally, the Company estimates that it is contractually entitled to receive an additional $8,752,000 of the purchase price related to other tax payments and refunds. While the Company believes it is entitled to these amounts from Cinemex, the resolution and collection will require litigation which was initiated by the Company on April 30, 2010. Resolution could take place over a prolonged period. As a result of the litigation, the Company has established an allowance for doubtful accounts related to this receivable in the amount of $7,480,000 and further directly charged off $1,381,000 of certain amounts as uncollectible with an offsetting charge of $8,861,000 recorded to loss on disposal included as a component of discontinued operations. The Company does not have any significant continuing involvement in the operations of the Cinemex theatres after the disposition. The results of operations of the Cinemex theatres have been classified as discontinued operations for all periods presented.
63
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 2DISCONTINUED OPERATIONS (Continued)
Components of amounts reflected as earnings (loss) from discontinued operations in the Company's Consolidated Statements of Operations are presented in the following table:
Statements of operations data:
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues |
||||||||||||
Admissions |
$ | | $ | 62,009 | $ | 87,469 | ||||||
Concessions |
| 44,744 | 60,456 | |||||||||
Other theatre |
| 21,755 | 23,358 | |||||||||
Total revenues |
| 128,508 | 171,283 | |||||||||
Costs and Expenses |
||||||||||||
Film exhibition costs |
| 27,338 | 37,435 | |||||||||
Concession costs |
| 10,158 | 13,949 | |||||||||
Operating expense |
| 32,699 | 42,302 | |||||||||
Rent |
| 14,934 | 18,540 | |||||||||
General and administrativeother |
| 8,880 | 10,720 | |||||||||
Depreciation and amortization |
| 21,070 | 29,083 | |||||||||
Loss (gain) on disposal |
7,534 | (14,772 | ) | | ||||||||
Total costs and expenses |
7,534 | 100,307 | 152,029 | |||||||||
Other Expense (Income) |
||||||||||||
Other expense |
| 416 | 501 | |||||||||
Interest expense |
||||||||||||
Corporate borrowings |
| 7,299 | 11,282 | |||||||||
Capital and financing lease obligations |
| 582 | 645 | |||||||||
Investment income |
| (1,124 | ) | (1,756 | ) | |||||||
Total other expense |
| 7,173 | 10,672 | |||||||||
Earnings (loss) before income taxes |
(7,534 | ) | 21,028 | 8,582 | ||||||||
Income tax provision |
| 11,300 | 6,780 | |||||||||
Net earnings (loss) from discontinued operations |
$ | (7,534 | ) | $ | 9,728 | $ | 1,802 | |||||
64
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 3PROPERTY
A summary of property is as follows:
(In thousands)
|
April 1, 2010 | April 2, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
Property owned: |
||||||||
Land |
$ | 43,384 | $ | 43,384 | ||||
Buildings and improvements |
157,142 | 156,665 | ||||||
Leasehold improvements |
824,461 | 812,972 | ||||||
Furniture, fixtures and equipment |
1,243,323 | 1,253,050 | ||||||
|
2,268,310 | 2,266,071 | ||||||
Less-accumulated depreciation and amortization |
1,421,367 | 1,319,353 | ||||||
|
846,943 | 946,718 | ||||||
Property leased under capital leases: |
||||||||
Buildings and improvements |
33,864 | 33,864 | ||||||
Less-accumulated amortization |
17,275 | 15,914 | ||||||
|
16,589 | 17,950 | ||||||
|
$ | 863,532 | $ | 964,668 | ||||
Property is recorded at cost or fair value, in the case of property resulting from acquisitions. The Company uses the straight-line method in computing depreciation and amortization for financial reporting purposes. The estimated useful lives for leasehold improvements reflect the shorter of the base terms of the corresponding lease agreements or the expected useful lives of the assets. The estimated useful lives are as follows:
Buildings and improvements |
5 to 40 years | |
Leasehold improvements |
1 to 20 years | |
Furniture, fixtures and equipment |
1 to 10 years |
Expenditures for additions (including interest during construction) and betterments are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal. Gains or losses resulting from property disposals are included in operating expense in the accompanying consolidated statements of operations.
Depreciation expense was $163,506,000, $174,851,000, and $190,194,000 for the periods ended April 1, 2010, April 2, 2009, and April 3, 2008, respectively.
65
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 4GOODWILL AND OTHER INTANGIBLE ASSETS
Activity of goodwill is presented below.
(In thousands)
|
|
|||
---|---|---|---|---|
Balance as of April 3, 2008 |
$ | 2,070,858 | ||
Currency translation adjustment |
(45,977 | ) | ||
Fair value deferred tax asset adjustments LCE(1) |
(31,515 | ) | ||
Disposition of Cinemex |
(156,635 | ) | ||
Balance as of April 1, 2010 and April 2, 2009 |
$ | 1,836,731 | ||
- (1)
- Adjustments to fair value relate to the release of a valuation allowance initially recorded in purchase accounting for deferred tax assets related to net operating loss carryforwards expected to be utilized by Parent in the future for a deferred taxable gain related to the purchase of term loans by Parent.
Activity of other intangible assets is presented below:
|
|
April 1, 2010 | April 2, 2009 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
Remaining Useful Life |
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
|||||||||||
Amortizable Intangible Assets: |
||||||||||||||||
Favorable leases |
3 to 11 years | $ | 104,301 | $ | (43,782 | ) | $ | 104,646 | $ | (35,949 | ) | |||||
Loyalty program |
3 years | 46,000 | (38,870 | ) | 46,000 | (34,914 | ) | |||||||||
LCE trade name |
1 year | 2,300 | (1,920 | ) | 2,300 | (1,460 | ) | |||||||||
LCE management contracts |
13 to 21 years | 35,400 | (29,209 | ) | 35,400 | (27,893 | ) | |||||||||
Other intangible assets |
1 to 12 years | 13,654 | (13,442 | ) | 13,654 | (13,418 | ) | |||||||||
Total, amortizable |
$ | 201,655 | $ | (127,223 | ) | $ | 202,000 | $ | (113,634 | ) | ||||||
Unamortized Intangible Assets: |
||||||||||||||||
AMC trademark |
$ | 74,000 | $ | 74,000 | ||||||||||||
Amortization expense associated with the intangible assets noted above is as follows:
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Recorded amortization |
$ | 13,934 | $ | 21,481 | $ | 28,387 |
Estimated amortization expense for the next five fiscal years for intangible assets is projected below:
(In thousands)
|
2011 | 2012 | 2013 | 2014 | 2015 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Projected amortization expense |
$ | 11,980 | $ | 10,856 | $ | 10,147 | $ | 7,769 | $ | 7,120 |
66
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 5INVESTMENTS
Investments in non-consolidated affiliates and certain other investments accounted for under the equity method generally include all entities in which the Company or its subsidiaries have significant influence, but not more than 50% voting control. Investments in non-consolidated affiliates as of April 1, 2010, include an 18.23% interest in National CineMedia, LLC ("NCM"), a 50% interest in three U.S. motion picture theatres, a 26% equity interest in Movietickets.com, Inc. ("MTC"), a 50% interest in Midland Empire Partners, LLC and a 29% interest in Digital Cinema Implementation Partners, LLC ("DCIP"). Financial results for the fifty-three weeks ended April 3, 2008 include a 50% interest in Hoyts General Cinemas South America ("HGCSA"), an entity that operated 17 theatres in South America, which was disposed of in July 2007.
In May 2007, the Company disposed of its investment in Fandango, Inc. ("Fandango"), accounted for using the cost method, for total proceeds of approximately $20,360,000, of which $17,977,000 was received in May and September 2007 and $2,383,000 was received in November 2008. The Company recorded a gain on the sale recorded in investment income of approximately $15,977,000 during fiscal 2008 and $2,383,000 during fiscal 2009. In July 2007, the Company disposed of its investment in HGCSA for total proceeds of approximately $28,682,000 and recorded a gain on the sale included in equity earnings of non-consolidated entities of approximately $18,751,000.
DCIP Transactions
On March 10, 2010, DCIP completed its financing transactions for the deployment of digital projection systems to nearly 14,000 movie theatre screens across North America, including screens operated or managed by AMC Entertainment Inc., Cinemark Holdings, Inc. ("Cinemark") and Regal Entertainment Group ("Regal"). At closing the Company contributed 342 projection systems that it owned to DCIP which were recorded at estimated fair value as part of an additional investment in DCIP of $21,768,000. The Company also made cash investments in DCIP of $840,000 at closing and DCIP made a distribution of excess cash to us after the closing date and prior to year-end of $1,262,000. The Company recorded a loss on contribution of the 342 projection systems of $563,000, based on the difference between estimated fair value and its carrying value on the date of contribution. On March 26, 2010, the Company acquired 117 digital projectors from third party lessors for $6,784,000 and sold them together with seven digital projectors that it owned to DCIP for $6,570,000. The Company recorded a loss on the sale of these 124 systems to DCIP of $697,000. As of April 1, 2010, the Company operated 568 digital projection systems leased from DCIP pursuant to operating leases and anticipates that it will have deployed 4,000 of these systems in its existing theatres over the next three to four years.
The digital projection systems leased from DCIP and its affiliates will replace most of the Company's existing 35 millimeter projection systems in its U.S. theatres. The Company is examining its estimated depreciable lives for its existing equipment, with a net book value of approximately $14,224,000 that will be replaced and expects to accelerate the depreciation of these existing 35 millimeter projection systems, based on the estimated digital projection system deployment timeframe.
NCM Transactions
On March 29, 2005, the Company along with Regal combined their screen advertising operations to form NCM. On July 15, 2005, Cinemark joined the NCM joint venture by contributing its screen
67
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 5INVESTMENTS (Continued)
advertising business. On February 13, 2007, National CineMedia, Inc. ("NCM, Inc."), a newly formed entity that now serves as the sole manager of NCM, closed its initial public offering, or IPO, of 42,000,000 shares of its common stock at a price of $21.00 per share.
In connection with the completion of NCM, Inc.'s IPO, on February 13, 2007, the Company entered into the Third Amended and Restated Limited Liability Company Operating Agreement (the "NCM Operating Agreement") among American Multi-Cinema, Inc., Regal and Cinemark (the "Founding Members"). Pursuant to the NCM Operating Agreement, the members are granted a redemption right to exchange common units of NCM for NCM, Inc. shares of common stock on a one-for-one basis, or at the option of NCM, Inc., a cash payment equal to the market price of one share of NCM, Inc.'s common stock. Upon execution of the NCM Operating Agreement, each existing preferred unit of NCM held by the Founding Members was redeemed in exchange for $13.7782 per unit, resulting in the cancellation of each preferred unit. NCM used the proceeds of a new $725,000,000 term loan facility and $59,800,000 of net proceeds from the NCM, Inc. IPO to redeem the outstanding preferred units. The Company received approximately $259,347,000 in the aggregate for the redemption of all its preferred units in NCM. The Company received approximately $26,467,000 from selling common units in NCM to NCM, Inc. in connection with the exercise of the underwriters' over-allotment option in the NCM, Inc. IPO.
Also in connection with the completion of NCM, Inc.'s IPO, the Company agreed to modify NCM's payment obligations under the prior Exhibitor Services Agreement ("ESA") in exchange for approximately $231,308,000. The ESA provides a term of 30 years for advertising and approximately five year terms (with automatic renewal provisions) for meeting event and digital programming services, and provides NCM with a five year right of first refusal for the services beginning one year prior to the end of the term. The ESA also changed the basis upon which the Company is paid by NCM from a percentage of revenues associated with advertising contracts entered into by NCM to a monthly theatre access fee. The theatre access fee is now composed of a fixed payment per patron and a fixed payment per digital screen, which increases by 8% every five years starting at the end of fiscal 2011 for payments per patron and by 5% annually starting at the end of fiscal 2007 for payments per digital screen. The theatre access fee paid in the aggregate to the Founding Members will not be less than 12% of NCM's aggregate advertising revenue, or it will be adjusted upward to meet this minimum payment. Additionally, the Company entered into the First Amended and Restated Loews Screen Integration Agreement with NCM on February 13, 2007, pursuant to which the Company paid NCM an amount that approximated the EBITDA that NCM would have generated if it had been able to sell advertising in the Loews Cineplex Entertainment Corporation ("Loews") theatre chain on an exclusive basis commencing upon the completion of NCM, Inc.'s IPO, and NCM issued to AMC common membership units in NCM, increasing the Company's ownership interest to approximately 33.7%; such Loews payments were made quarterly until the former screen advertising agreements expired in fiscal 2009. The Loews Screen Integration payments totaling $15,982,000 have been paid in full in fiscal 2010. The Company is also required to purchase from NCM any on-screen advertising time provided to the Company's beverage concessionaire at a negotiated rate. In addition, the Company expects to receive mandatory quarterly distributions of excess cash from NCM. Immediately following the NCM, Inc. IPO, the Company held an 18.6% interest in NCM.
68
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 5INVESTMENTS (Continued)
Annual adjustments to the common membership units are made pursuant to the Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Founding Members. The adjustments to common membership units reflect changes in the number of theatre screens operated and attendance. Effective March 27, 2008, the Company received 939,853 common membership units of NCM as a result of the Common Unit Adjustment, increasing the Company's interest in NCM to 19.1%. The Company recorded the additional units received as a result of the Common Unit Adjustment at fair value and as a new investment (Tranche 2 Investment) with an offsetting adjustment to deferred revenue. Effective May 29, 2008, NCM issued 2,913,754 common membership units to another founding member due to an acquisition, which caused a decrease in AMC's ownership share from 19.1% to 18.52%. Effective March 17, 2009, the Company received 406,371 common membership units of NCM as a result of the Common Unit Adjustment, increasing the Company's interest in NCM to 18.53%. Effective March 17, 2010, the Company received 127,290 common membership units of NCM. As a result of the Common Unit Adjustment among the founding members, the Company's interest in NCM decreased to 18.23%. The Company recorded the additional units received at fair value with an offsetting adjustment to deferred revenue.
As a result of NCM, Inc's IPO and debt financing, the Company recorded a change of interest gain of $132,622,000 and received distributions in excess of its investment in NCM related to the redemption of preferred and common units of $106,188,000. The Company reduced its investment in NCM to zero and recognized the change of interest gain and the excess distribution as a gain in equity in earnings of non-consolidated entities, as it has not guaranteed any obligations of NCM and is not otherwise committed to provide further financial support for NCM.
Following the NCM, Inc. IPO, the Company will not recognize undistributed equity in the earnings on the original NCM membership units until NCM's future net earnings, less distributions received, surpass the amount of the excess distribution. The Company will recognize equity in earnings only to the extent it receives cash distributions from NCM. The Company considers the excess distribution as an advance on NCM's future earnings and, accordingly, future earnings of NCM should not be recognized through the application of equity method accounting until such time as the Company's share of NCM's future earnings, net of distributions received, exceeds the excess distribution. The Company believes that the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in excess of an investor's basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution.
Pursuant to the Company's Tax Receivable Agreement with National CineMedia, Inc., the Company receives periodic distributions based on certain tax benefits related to the NCM Transactions. As of April 1, 2010, the Company owns 18,948,404 units or an 18.23% interest in NCM. As a founding member, the Company has the ability to exercise significant control over the governance of NCM, and, accordingly accounts for its investment following the equity method. The fair market value of the units in National CineMedia, LLC was approximately $334,629,000, based on a price for shares of National CineMedia, Inc. on April 1, 2010 of $17.66 per share.
Related Party Transactions
As of April 1, 2010 and April 2, 2009, the Company has recorded $1,462,000 and $1,342,000, respectively, of amounts due from NCM related to on-screen advertising revenue. As of April 1, 2010
69
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 5INVESTMENTS (Continued)
and April 2, 2009, the Company had recorded $1,502,000 and $1,657,000, respectively, of amounts due to NCM related to the ESA and the Loews Screen Integration Agreement. The Company recorded revenues for advertising from NCM of $20,352,000, $19,116,000 and $14,531,000 during the fifty-two weeks ended April 1, 2010, April 2, 2009, and the fifty-three weeks ended April 3, 2008, respectively. The Company recorded expenses related to its beverage advertising agreement with NCM of $12,107,000, $15,118,000 and $16,314,000 during fiscal years 2010, 2009, and 2008, respectively.
Summary Financial Information
Condensed financial information of the Company's non-consolidated equity method investments is shown below. Amounts are presented under U.S. GAAP for the periods of ownership by the Company.
Financial Condition:
(In thousands)
|
April 1, 2010 | April 2, 2009 | |||||
---|---|---|---|---|---|---|---|
Current assets |
$ | 145,019 | $ | 110,184 | |||
Noncurrent assets |
386,830 | 252,163 | |||||
Total assets |
531,849 | 362,347 | |||||
Current liabilities |
38,521 | 71,448 | |||||
Noncurrent liabilities |
960,665 | 892,376 | |||||
Total liabilities |
999,186 | 963,824 | |||||
Stockholders' deficit |
(467,337 | ) | (601,477 | ) | |||
Liabilities and stockholders' deficit |
531,849 | 362,347 | |||||
The Company's recorded investment(1) |
$ | 69,922 | $ | 47,439 |
- (1)
- Certain differences in the Company's recorded investment over its proportional ownership share are amortized to equity in (earnings) or losses over the estimated useful life of the underlying assets or liabilities. The recorded equity in earnings of NCM on common membership units owned immediately following the IPO of NCM, Inc. (Tranche 1 Investment) does not include undistributed equity in earnings. The Company considered the excess distribution received following NCM, Inc.'s IPO as an advance on NCM's future earnings. As a result, the Company will not recognize any undistributed equity in earnings of NCM on the original common membership units (Tranche 1 Investment) until NCM's future net earnings equal the amount of the excess distribution.
Included in impairment of long-lived assets for the fifty-two weeks ended April 2, 2009 is an impairment charge of $2,742,000 related to a theatre joint venture investment. The decline in the fair market value of the investment was considered other than temporary due to competitive theatre builds.
70
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 5INVESTMENTS (Continued)
Operating Results:
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues |
$ | 432,551 | $ | 419,401 | $ | 322,536 | ||||
Operating costs and expenses |
310,819 | 318,774 | 214,144 | |||||||
Net earnings |
121,732 | 100,627 | 108,392 | |||||||
The Company's recorded equity in earnings |
30,300 | 24,823 | 43,019 |
71
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 5INVESTMENTS (Continued)
The Company recorded the following changes in the carrying amount of its investment in NCM and equity in (earnings) losses of NCM during the fifty-three weeks ended April 3, 2008, and the fifty-two weeks ended April 2, 2009 and April 1, 2010.
(In thousands)
|
Investment in NCM(1) |
Deferred Revenue(2) |
Due to NCM(3) |
Cash Received (Paid) |
Equity in (Earnings) Losses |
Advertising (Revenue) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Ending balance March 29, 2007 |
$ | | $ | (231,045 | ) | $ | (15,850 | ) | $ | | $ | | $ | | |||||
Receipt of excess cash distributions |
| | | 22,175 | (22,175 | ) | | ||||||||||||
Payments on Loews' Screen Integration Agreement |
| | 11,201 | (11,201 | ) | | | ||||||||||||
Receipt of Common Units |
21,598 | (21,598 | ) | | | | | ||||||||||||
Amortization of deferred revenue |
| 2,331 | | | | (2,331 | ) | ||||||||||||
Ending balance April 3, 2008 |
$ | 21,598 | $ | (250,312 | ) | $ | (4,649 | ) | $ | 10,974 | $ | (22,175 | ) | $ | (2,331 | ) | |||
Receipt under Tax Receivable Agreement |
$ | | $ | | $ | | $ | 3,796 | $ | (3,796 | ) | $ | | ||||||
Receipt of Common Units |
5,453 | (5,453 | ) | | | | | ||||||||||||
Receipt of excess cash distributions |
(1,241 | ) | | | 24,308 | (23,067 | ) | | |||||||||||
Payments on Loews' Screen Integration Agreement |
| | 4,700 | (4,700 | ) | | | ||||||||||||
Increase Loews' Screen Integration Liability |
| | (132 | ) | | 132 | | ||||||||||||
Change in interest loss(4) |
(83 | ) | | | | 83 | | ||||||||||||
Amortization of deferred revenue |
| 2,601 | | | | (2,601 | ) | ||||||||||||
Equity in earnings(5) |
1,006 | | | | (1,006 | ) | | ||||||||||||
Ending balance April 2, 2009 |
$ | 26,733 | $ | (253,164 | ) | $ | (81 | ) | $ | 23,404 | $ | (27,654 | ) | $ | (2,601 | ) | |||
Receipt under Tax Receivable Agreement |
$ | | $ | | $ | | $ | 8,788 | $ | (8,788 | ) | $ | | ||||||
Receipt of Common Units |
2,290 | (2,290 | ) | | | | | ||||||||||||
Receipt of excess cash distributions |
(1,847 | ) | | | 25,827 | (23,980 | ) | | |||||||||||
Payment on Loews' Screen Integration Agreement |
| | 81 | (81 | ) | | | ||||||||||||
Receipt of tax credits |
(1 | ) | | | 18 | (17 | ) | | |||||||||||
Change in interest loss(4) |
(57 | ) | | | | 57 | | ||||||||||||
Amortization of deferred revenue |
| 3,132 | | | | (3,132 | ) | ||||||||||||
Equity in earnings(5) |
1,708 | | | | (1,708 | ) | | ||||||||||||
Ending balance April 1, 2010 |
$ | 28,826 | $ | (252,322 | ) | $ | | $ | 34,552 | $ | (34,436 | ) | $ | (3,132 | ) | ||||
- (1)
- The NCM common membership units held by AMC immediately following the NCM, Inc. IPO are carried at zero cost (Tranche 1 Investment). As provided under the Common Unit Adjustment Agreement dated as of February 13, 2007, AMC received additional NCM common membership
72
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 5INVESTMENTS (Continued)
units in fiscal 2008, 2009 and 2010, valued at $21,598,000, $5,453,000 and $2,290,000, respectively (Tranche 2 Investments).
- (2)
- Represents
the unamortized portion of the Exhibitors Services Agreement (ESA) modifications payment received from NCM.
- (3)
- Represents
the amount due to NCM under the Loews Screen Integration Agreement that was fully paid in April 2009.
- (4)
- AMC's
ownership share decreased from 19.1% to 18.52% effective May 29, 2008 due to NCM's issuance of 2,913,754 common membership units to another
founding member due to an acquisition. In fiscal 2010, AMC's ownership share decreased to 18.23% due to the allocation of the annual Common Unit Adjustment.
- (5)
- Represents equity in earnings on the Tranche 2 Investments only.
73
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 6SUPPLEMENTAL BALANCE SHEET INFORMATION
Other assets and liabilities consist of the following:
(In thousands)
|
April 1, 2010 | April 2, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
Other current assets: |
||||||||
Prepaid rent |
$ | 34,442 | $ | 34,135 | ||||
Income taxes receivable |
2,144 | 8,757 | ||||||
Prepaid insurance and other |
12,127 | 16,854 | ||||||
Merchandise inventory |
8,222 | 6,745 | ||||||
Deferred tax asset |
9,200 | 7,800 | ||||||
Other |
6,784 | 6,235 | ||||||
|
$ | 72,919 | $ | 80,526 | ||||
Other long-term assets: |
||||||||
Investments in real estate |
$ | 5,126 | $ | 6,561 | ||||
Deferred financing costs |
32,712 | 26,037 | ||||||
Investments in joint ventures |
69,922 | 47,439 | ||||||
Computer software |
28,817 | 31,249 | ||||||
Deferred tax asset |
95,300 | 30,200 | ||||||
Other |
6,226 | 4,602 | ||||||
|
$ | 238,103 | $ | 146,088 | ||||
Accrued expenses and other liabilities: |
||||||||
Taxes other than income |
$ | 39,470 | $ | 40,175 | ||||
Interest |
29,690 | 15,596 | ||||||
Payroll and vacation |
8,327 | 7,855 | ||||||
Current portion of casualty claims and premiums |
6,005 | 7,923 | ||||||
Accrued bonus |
15,964 | 1,183 | ||||||
Theatre and other closure |
6,694 | 7,386 | ||||||
Accrued licensing and percentage rent |
17,926 | 7,280 | ||||||
Current portion of pension and other benefits liabilities |
1,423 | 1,549 | ||||||
Other |
17,775 | 13,123 | ||||||
|
$ | 143,274 | $ | 102,070 | ||||
Other long-term liabilities: |
||||||||
Unfavorable lease obligations |
$ | 128,027 | $ | 139,537 | ||||
Deferred rent |
98,034 | 86,420 | ||||||
Pension and other benefits |
42,545 | 37,642 | ||||||
Deferred gain |
17,454 | 15,899 | ||||||
Tax liability |
7,000 | 7,000 | ||||||
Casualty claims and premiums |
12,250 | 14,600 | ||||||
Other |
4,281 | 7,605 | ||||||
|
$ | 309,591 | $ | 308,703 | ||||
74
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 7CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS
A summary of the carrying value of corporate borrowings and capital and financing lease obligations is as follows:
(In thousands)
|
April 1, 2010 | April 2, 2009 | |||||
---|---|---|---|---|---|---|---|
Senior Secured Credit Facility-Term Loan (2.00% as of April 1, 2010) |
$ | 622,375 | $ | 628,875 | |||
Senior Secured Credit Facility-Revolver |
| 185,000 | |||||
85/8% Senior Fixed Rate Notes due 2012 |
| 250,000 | |||||
8% Senior Subordinated Notes due 2014 |
299,227 | 299,066 | |||||
12% Senior Discount Notes due 2014 |
240,795 | 240,795 | |||||
11% Senior Subordinated Notes due 2016 |
325,000 | 325,000 | |||||
8.75% Senior Fixed Rate Notes due 2019 |
586,252 | | |||||
Capital and financing lease obligations, 9% - 11.5% |
57,286 | 60,709 | |||||
|
2,130,935 | 1,989,445 | |||||
Less: current maturities |
(10,463 | ) | (9,923 | ) | |||
|
$ | 2,120,472 | $ | 1,979,522 | |||
Minimum annual payments required under existing capital and financing lease obligations (net present value thereof) and maturities of corporate borrowings as of April 1, 2010 are as follows:
|
Capital and Financing Lease Obligations | |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Principal Amount of Corporate Borrowings |
|
||||||||||||||
(In thousands)
|
Minimum Lease Payments |
Less Interest | Principal | Total | ||||||||||||
2011 |
$ | 9,225 | $ | 5,262 | $ | 3,963 | $ | 6,500 | $ | 10,463 | ||||||
2012 |
8,023 | 4,870 | 3,153 | 6,500 | 9,653 | |||||||||||
2013 |
7,055 | 4,578 | 2,477 | 609,375 | 611,852 | |||||||||||
2014 |
6,706 | 4,338 | 2,368 | 300,000 | 302,368 | |||||||||||
2015 |
6,728 | 4,083 | 2,645 | 240,795 | 243,440 | |||||||||||
Thereafter |
61,900 | 19,220 | 42,680 | 925,000 | 967,680 | |||||||||||
Total |
$ | 99,637 | $ | 42,351 | $ | 57,286 | $ | 2,088,170 | $ | 2,145,456 | ||||||
Senior Secured Credit Facility
The senior secured credit facility is with a syndicate of banks and other financial institutions and provides AMC Entertainment financing of up to $850,000,000, consisting of a $650,000,000 term loan facility with a maturity date of January 26, 2013 and a $200,000,000 revolving credit facility that matures in 2012. The revolving credit facility includes borrowing capacity available for letters of credit and for swingline borrowings on same-day notice. As of April 1, 2010, AMC Entertainment had approximately $12,832,000 in outstanding letters of credit, leaving $187,168,000 available to borrow against the revolving credit facility.
Borrowings under the senior secured credit facility bear interest at a rate equal to an applicable margin plus, at the Company's option, either a base rate or LIBOR. On March 13, 2007, the Company
75
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 7CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued)
amended the senior secured credit facility to, among other things, lower the interest rates related to its term loan, reduce its unused commitment fee and amend the change of control definition so that an initial public offering and related transactions would not constitute a change of control. The current applicable margin for borrowings under the revolving credit facility is 0.75% with respect to base rate borrowings and 1.75% with respect to LIBOR borrowings, and the current applicable margin for borrowings under the term loan facility is 0.75% with respect to base rate borrowings and 1.75% with respect to LIBOR borrowings. In addition to paying interest on outstanding principal under the senior secured credit facility, AMC Entertainment is required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder at a rate equal to 0.25%. It will also pay customary letter of credit fees. AMC Entertainment may voluntarily repay outstanding loans under the senior secured credit facility at any time without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans. AMC Entertainment is required to repay $1,625,000 of the term loan quarterly, beginning March 30, 2006 through September 30, 2012, with any remaining balance due on January 26, 2013.
All obligations under the senior secured credit facility are guaranteed by each of AMC Entertainment's wholly-owned domestic subsidiaries. All obligations under the senior secured credit facility, and the guarantees of those obligations (as well as cash management obligations and any interest hedging or other swap agreements), are secured by substantially all of AMC Entertainment's assets as well as those of each subsidiary guarantor.
The senior secured credit facility contains a number of covenants that, among other things, restrict, subject to certain exceptions, AMC Entertainment's ability, and the ability of its subsidiaries, to sell assets; incur additional indebtedness; prepay other indebtedness (including the notes); pay dividends and distributions or repurchase their capital stock; create liens on assets; make investments; make certain acquisitions; engage in mergers or consolidations; engage in certain transactions with affiliates; amend certain charter documents and material agreements governing subordinated indebtedness, including the Existing Subordinated Notes; change the business conducted by it and its subsidiaries; and enter into agreements that restrict dividends from subsidiaries.
In addition, the senior secured credit facility requires, commencing with the fiscal quarter ended September 28, 2006, that AMC Entertainment and its subsidiaries maintain a maximum net senior secured leverage ratio as long as the commitments under the revolving credit facility remain outstanding. The senior secured credit facility also contains certain customary affirmative covenants and events of default.
AMCE is restricted, in certain circumstances, from paying dividends to Holdings by the terms of the indentures governing its outstanding senior and subordinated notes and its senior secured credit facility. AMCE has not guaranteed the indebtedness of Holdings nor pledged any of its assets as collateral.
76
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 7CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued)
Fixed Notes due 2012
In connection with the merger with Marquee, AMC Entertainment became the obligor of $250,000,000 aggregate principal amount of 85/8% Senior Notes due 2012 (the "Fixed Notes due 2012"), that were previously issued by Marquee on August 18, 2004.
On June 9, 2009, AMC Entertainment completed the offering of $600,000,000 aggregate principal amount of its 8.75% Senior Notes due 2019 (the "Notes due 2019"). Concurrently with the initial notes offering, AMCE launched a cash tender offer and consent solicitation for any and all of its then outstanding $250,000,000 aggregate principal amount of the Fixed Notes due 2012 at a purchase price of $1,000 plus a $30 consent fee for each $1,000 of principal amount of currently outstanding Fixed Notes due 2012 validly tendered and accepted by AMCE on or before the early tender date (the "Cash Tender Offer"). AMCE used the net proceeds from the issuance of the Notes due 2019 to pay the consideration for the Cash Tender Offer plus accrued and unpaid interest on $238,065,000 principal amount of the Fixed Notes due 2012. AMCE recorded a loss on extinguishment related to the Cash Tender Offer of $10,826,000 in Other expense during the fifty-two weeks ended April 1, 2010, which included previously capitalized deferred financing fees of $3,312,000, a consent fee paid to the holders of $7,142,000 and other expenses of $372,000. On August 15, 2009, AMCE redeemed the remaining $11,935,000 of Fixed Notes due 2012 at a price of $1,021.56 per $1,000 principal in accordance with the terms of the indenture. AMCE recorded a loss of $450,000 in Other expense related to the extinguishment of the remaining Fixed Notes due 2012 during the fifty-two weeks ended April 1, 2010, which included previously capitalized deferred financing fees of $157,000, consent fee paid to the holders of $257,000 and other expenses of $36,000.
Notes Due 2014
On February 24, 2004, AMC Entertainment sold $300,000,000 aggregate principal amount of 8% Senior Subordinated Notes due 2014 (the "Notes due 2014"). AMC Entertainment applied the net proceeds from the sale of Notes due 2014, plus cash on hand, to redeem all outstanding $200,000,000 aggregate principal amount of its 91/2% Senior Subordinated Notes due 2009 and $83,406,000 aggregate principal amount of its Notes due 2011. The Notes due 2014 bear interest at the rate of 8% per annum, payable in March and September. The Notes due 2014 are redeemable at the option of AMC Entertainment, in whole or in part, at any time on or after March 1, 2009 at 104% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after March 1, 2012, plus in each case interest accrued to the redemption date. The Notes due 2014 are subordinated to all existing and future senior indebtedness of AMC Entertainment. The Notes due 2014 are unsecured senior subordinated indebtedness of AMC Entertainment ranking equally with AMC Entertainment's Notes due 2016.
The indenture governing the Notes due 2014 contains certain covenants that, among other things, may limit the ability of AMC Entertainment and its subsidiaries to incur additional indebtedness and pay dividends or make distributions in respect of their capital stock.
77
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 7CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued)
In connection with the merger with Marquee, the carrying value of the Notes due 2014 was adjusted to fair value. As a result, a discount of $1,500,000 was recorded and will be amortized to interest expense over the remaining term of the notes.
Notes Due 2016
On January 26, 2006, AMC Entertainment issued $325,000,000 aggregate principal amount of 11% Senior Subordinated Notes (the "Notes due 2016") issued under an indenture (the "Indenture"), with HSBC Bank USA, National Association, as trustee. The Notes due 2016 will bear interest at a rate of 11% per annum, payable on February 1 and August 1 of each year (commencing on August 1, 2006), and have a maturity date of February 1, 2016.
The Notes due 2016 are general unsecured senior subordinated obligations of AMC Entertainment, fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by each of AMC Entertainment's existing and future domestic restricted subsidiaries that guarantee AMC Entertainment's other indebtedness.
AMC Entertainment may redeem some or all of the Notes due 2016 at any time on or after February 1, 2011 at 105.5% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after February 1, 2014.
The indenture governing the Notes due 2016 contains covenants limiting other indebtedness, dividends, purchases or redemptions of stock, transactions with affiliates and mergers and sales of assets. It also contains provisions subordinating AMC Entertainment's obligations under the Notes due 2016 to AMC Entertainment's obligations under its senior secured credit facility and other senior indebtedness.
Notes Due 2019
On June 9, 2009, AMC Entertainment issued $600,000,000 aggregate principal amount of 8.75% Senior Notes (the "Notes due 2019") issued under an indenture (the "Indenture"), with U.S. Bank, National Association, as trustee. The Notes due 2019 bear interest at a rate of 8.75% per annum, payable on June 1 and December 1 of each year (commencing on December 1, 2009), and have a maturity date of June 1, 2019.
The Notes due 2019 are general unsecured senior obligations of AMC Entertainment, fully and unconditionally guaranteed, jointly and severally, on a senior basis by each of AMC Entertainment's existing and future domestic restricted subsidiaries that guarantee AMC Entertainment's other indebtedness.
The Notes due 2019 are redeemable at AMCE's option in whole or in part, at any time on or after June 1, 2014 at 104.375% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after June 1, 2017. In addition, AMC Entertainment may redeem up to 35% of the aggregate principal amount of the notes using net proceeds from certain equity offerings completed on or prior to June 1, 2012 at a redemption price of 108.75%.
78
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 7CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued)
The indenture governing the Notes due 2019 contains covenants limiting other indebtedness, dividends, purchases or redemptions of stock, transactions with affiliates and mergers and sales of assets. It also contains provisions subordinating AMC Entertainment's obligations under the Notes due 2019 to AMC Entertainment's obligations under its senior secured credit facility and other senior indebtedness. The Notes due 2019 were issued at a 2.418% discount which is amortized to interest expense following the interest method over the term of the notes.
As of April 1, 2010, the Company was in compliance with all financial covenants relating to the senior secured credit facility, the Notes due 2016, Discount Notes due 2014, the Notes due 2014 and the Notes due 2019.
Change of Control
Upon a change of control (as defined in the indentures), AMCE would be required to make an offer to repurchase all of the outstanding Notes due 2019, Notes due 2016, and Notes due 2014 at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The Sponsors are considered Permitted Holders as defined in each of the indentures and as such could create certain voting arrangements that would not constitute a change of control under the indentures.
Holdings Discount Notes Due 2014
To help finance the merger with Marquee, Holdings issued $304,000,000 aggregate principal amount at maturity of its 12% Senior Discount Notes due 2014 ("Discount Notes due 2014") for gross proceeds of $169,917,760. The indenture governing the Discount Notes due 2014 contains certain covenants that, among other things, may limit the ability of the Company and its subsidiaries to incur additional indebtedness and pay dividends or make distributions in respect of their capital stock.
The indentures relating to the Discount Notes due 2014 allows the Company to incur specified permitted indebtedness (as defined therein) without restriction. The indenture also allows the Company to incur any amount of additional debt, including borrowings under the revolving portion of AMCE's senior secured credit facility, as long as the Company can satisfy the applicable coverage ratio of each indenture, after giving effect to the event on a pro forma basis under the indenture for the Discount Notes due 2014. Under the indenture relating to the Senior Discount Notes due 2014 (the Company's most restrictive indenture), the Company could borrow approximately $220,600,000 (assuming an interest rate of 8.25% per annum on the additional indebtedness) in addition to specified permitted indebtedness. If the Company cannot satisfy the applicable coverage ratios of the indentures, generally the Company can incur, in addition to amounts borrowed under the senior secured credit facility, no more than $100,000,000 of new "permitted indebtedness" under the terms of the indentures relating to the Company's notes and the Parent Term Loan Facility.
Holdings is a holding company with no operations of its own and has no ability to service interest or principal on the Discount Notes due 2014 other than through any dividends it may receive from AMCE. AMCE will be restricted, in certain circumstances, from paying dividends to Holdings by the terms of the indentures governing the Notes due 2014, the Notes due 2016, the Notes due 2019 and the
79
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 7CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued)
senior secured credit facility. Under the most restrictive of these provisions, set forth in the Indenture for the Notes due 2016, the amount of loans and dividends which AMCE could make to Holdings may not exceed approximately $309,752,000 in the aggregate as of April 1, 2010. AMCE has not guaranteed the indebtedness of Holdings nor pledged any of its assets as collateral and the obligation is not reflected on AMCE's balance sheet.
On any interest payment date prior to August 15, 2009, Holdings was permitted to commence paying cash interest (from and after such interest payment date) in which case (i) Holdings would be obligated to pay cash interest on each subsequent interest payment date, (ii) the notes would cease to accrete after such interest payment date and (iii) the outstanding principal amount at the maturity of each note would be equal to the accreted value of such notes as of such interest payment date. Holdings commenced paying cash interest on August 16, 2007 and made its first semi-annual interest payment on February 15, 2008 at which time the principal became fixed at $240,795,000.
Upon a change of control (as defined in the indentures), Holdings would be required to make an offer to repurchase all of the outstanding Discount Notes due 2014 at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest.
Parent Term Loan Facility
To help finance the dividend paid by Parent to its stockholders discussed in Note 8Stockholder's Equity, Parent entered into a $400,000,000 Credit Agreement dated as of June 13, 2007 ("Parent Term Loan Facility") for net proceeds of $396,000,000. Costs related to the issuance of the Parent Term Loan Facility were capitalized and are charged to interest expense, following the interest method, over the life of the Parent Term Loan Facility. During fiscal 2010, Parent made payments to purchase term loans and reduce the principal balance of its Parent Term Loan Facility from $466,936,000 to $193,290,000 with a portion of the dividend provided by the Company. As of April 1, 2010, the principal balance of the Parent Term Loan Facility, including unpaid interest, was $198,973,000 and the interest rate on borrowings thereunder was 5.26% per annum.
Parent is a holding company with no operations of its own and has no ability to service interest or principal on the Parent Term Loan Facility other than through dividends it may receive from Holdings and AMCE. Holdings and AMCE are restricted, in certain circumstances, from paying dividends to Parent by the terms of the indentures governing their Notes due 2014, Notes due 2016, Discount Notes due 2014, Notes due 2019 and the senior secured credit facility. Holdings and AMCE have not guaranteed the indebtedness of Parent nor pledged any of their assets as collateral and the obligation is not reflected on AMCE's or Holdings' balance sheet.
Borrowings under the Parent Term Loan Facility bear interest at a rate equal to an applicable margin plus, at the Parent's option, either a base rate or LIBOR. The initial applicable margin for borrowings under the Parent Term Loan Facility is 4.00% with respect to base rate borrowings and 5.00% with respect to LIBOR borrowings. Interest on borrowings under the Parent Term Loan Facility is payable on each March 15, June 15, September 15, and December 15, beginning September 15, 2007 by adding such interest for the applicable period to the principal amount of the outstanding loans.
80
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 7CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued)
Parent is required to pay an administrative agent fee to the lenders under the Parent Term Loan Facility of $100,000 annually.
Parent may voluntarily repay outstanding loans under the Parent Term Loan Facility, in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid at any time on or before June 13, 2010 at 101% of principal and at 100% of principal thereafter. Unpaid principal and interest on outstanding loans under the Parent Term Loan Facility are required to be repaid upon maturity on June 13, 2012.
Upon a change of control (as defined in the Parent Term Loan Facility), Lenders have the right to require Parent to prepay the Parent Term Loan Facility at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest. The Sponsors are considered Permitted Holders as defined in the Parent Term Loan Facility and as such could create certain voting arrangements that would not constitute a change of control under the Parent Term Loan Facility. In the event of a qualified equity issuance offer as defined in the Parent Term Loan Facility, Parent will, to the extent lawful, prepay the maximum principal amount of loans properly tendered that may be purchased out of any qualified equity issuance net proceeds at a prepayment price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of prepayment.
The Parent Term Loan Facility contains certain covenants that, among other things, may limit the ability of the Parent to incur additional indebtedness and pay dividends or make distributions in respect of its capital stocks, and this obligation is not reflected on AMCE's balance sheet.
NOTE 8STOCKHOLDER'S EQUITY
Holdings has one share of Common Stock issued as of April 1, 2010 which is owned by Parent.
On June 20, 2005, Holdings entered into a merger agreement ("Merger Agreement") with LCE Holdings, Inc. ("LCE Holdings"), the parent of Loews Cineplex Entertainment Corporation ("Loews"), pursuant to which LCE Holdings merged with and into Holdings, with Holdings continuing as the holding company for the merged businesses, and Loews merged with and into AMCE, with AMCE continuing after the merger (the "Merger" and collectively, the "Mergers"). The transaction closed on January 26, 2006.
Pursuant to the terms of the Merger Agreement, on January 26, 2006, in connection with the consummation of the Merger, Holdings issued 256,085.61252 voting shares of Class L-1 Common Stock, par value $0.01 per share ("Class L-1 Common Stock"), 256,085.61252 voting shares of Class L-2 Common Stock, par value $0.01 per share ("Class L-2 Common Stock" and, together with the Class L-1 Common Stock, the "Class L Common Stock"), 382,475 voting shares of Class A-1 Common Stock, par value $0.01 per share (the "Class A-1 Common Stock"), 382,475 voting shares of Class A-2 Common Stock, par value $0.01 per share (the "Class A-2 Common Stock" and, together with the Class A-1 Common Stock, the "Class A Common Stock"), and 5,128.77496 nonvoting shares of Class N Common Stock, par value $0.01 per share (the Class N Common Stock"), such that (i) the former non-management stockholders of LCE Holdings, including the Bain Investors, the Carlyle Investors and the Spectrum Investors (collectively, the "Former LCE Sponsors"), hold all of the outstanding shares of Class L Common Stock, (ii) the pre-existing non-management stockholders of
81
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 8STOCKHOLDER'S EQUITY (Continued)
Holdings, including the JPMP Investors and the Apollo Investors (collectively, the "Pre-Existing Holdings Sponsors" and, the Pre-Existing Holdings Sponsors together with the Former LCE Sponsors, the "Sponsors") and other co-investors (the "Coinvestors"), hold all of the outstanding shares of Class A Common Stock, and (iii) management stockholders of Holdings (the "Management Stockholders" and, together with the Sponsors and Coinvestors, the "Stockholders") hold all of the non-voting Class N Common Stock.
The Class L Common Stock, Class A Common Stock and Class N Common Stock will automatically convert on a one-for-one basis into shares of Residual Common Stock, par value $0.01 per share, upon (i) written consent of each of the Sponsors or (ii) the completion of an initial public offering of capital stock of Parent, Holdings or AMCE (an "IPO").
The issuance of the equity securities was exempt from registration under the Securities Act of 1933 and the rules promulgated thereunder (the "Securities Act") in reliance on Section 4(2) of the Securities Act, as transactions by an issuer not involving a public offering.
On June 11, 2007, Marquee Merger Sub Inc. ("merger sub"), a wholly-owned subsidiary of Parent, merged with and into Holdings, with Holdings continuing as the surviving corporation ("holdco merger"). As a result of the holdco merger, (i) Holdings became a wholly owned subsidiary of Parent, a newly formed entity controlled by the Sponsors, (ii) each share of Holdings' common stock that was issued and outstanding immediately prior to the effective time of the holdco merger was automatically converted into a substantially identical share of common stock of Parent, and (iii) as further described in this report, each of Holdings' governance agreements was superseded by a substantially identical governance agreement entered into by and among Parent, the Sponsors and Holdings' other stockholders. The holdco merger was effected by the Sponsors to facilitate a previously announced debt financing by Parent and a related dividend to its stockholders. Parent used cash derived from AMCE and proceeds from the issuance of a $400,000,000 Credit Agreement issued by Parent (See Note 7) to pay a dividend to its stockholders of $652,800,000 during fiscal year 2008.
On June 12, 2007, Holdings announced that it had completed a solicitation of consents from holders of its Discount Notes due 2014, and that it had received consents for $301,933,000 in aggregate principal amount at maturity of the Discount Notes due 2014, representing 99.32% of the outstanding Discount Notes due 2014. In connection with the receipt of consents, Holdings paid an aggregate consent fee of approximately $4,360,000, representing a consent fee of $14.44 for each $1,000 in principal amount at maturity of Discount Notes due 2014 to which consents were delivered. Accordingly, the requisite consents to adopt the proposed amendment (the "Amendment") to the indenture pursuant to which the Discount Notes due 2014 were issued were received, and a supplemental indenture to effect the Amendment was executed by Holdings and the trustee under the indenture. The Amendment revised the restricted payments covenant to permit Holdings to make restricted payments in an aggregate amount of $275,000,000 prior to making an election to pay cash interest on its senior discount notes. The Amendment also contained a covenant by Holdings to make an election on August 15, 2007, the next semi-annual accretion date under the indenture, to pay cash interest on the senior discount notes. As a result, Holdings made its first cash interest payment on the senior discount notes on February 15, 2008. Holdings used cash on hand at AMCE to pay a dividend to Parent in an aggregate amount of $270,588,000.
82
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 8STOCKHOLDER'S EQUITY (Continued)
During fiscal 2009, Holdings distributed to Parent $3,349,000 which has been recorded by Holdings as a reduction to additional paid-in capital. Parent used the available funds to repurchase treasury stock and pay corporate overhead expenses incurred in the ordinary course of business.
During fiscal 2010, Holdings used cash received from AMCE to pay a dividend distribution of $300,881,000 to Parent. Parent made payments to purchase term loans and reduced the principal balance of its Parent Term Loan Facility from $466,936,000 to $193,290,000 with a portion of the dividend proceeds.
As discussed in Note 9Income Taxes, the Company adopted the accounting guidance for uncertainty in income taxes under ASC 740, Income Taxes, on March 30, 2007. The cumulative effect of the change on adoption charged to accumulated deficit was $5,373,000. As discussed in Note 11Employee Benefit Plans, the Company adopted the amended provisions of ASC 715, Compensation-Retirement Benefits, and recorded an $82,000 loss to fiscal 2009 opening accumulated deficit.
Common Stock Rights and Privileges
Parent's Class A-1 voting Common Stock, Class A-2 voting Common Stock, Class N nonvoting Common Stock, Class L-1 voting Common Stock and Class L-2 voting Common Stock entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions with respect to dividends. Additionally, each share of Class A Common Stock, Class L Common Stock and Class N Common Stock shall automatically convert into one share of Residual Common Stock on a one-for-one basis immediately prior to the consummation of an Initial Public Offering.
Stock-Based Compensation
The Company has no stock-based compensation arrangements of its own, but Parent, has adopted a stock-based compensation plan that permits grants of up to 49,107.44681 options on Parent's stock and has granted options on 4,786.0000, 15,980.45, 600.00000 and 38,876.72873 of its shares to certain employees during the periods ended April 1, 2010, April 2, 2009, March 30, 2006 and March 31, 2005, respectively. As of April 1, 2010, there was $2,166,000 of total estimated unrecognized compensation cost related to nonvested stock-based compensation arrangements under the Holdings plan expected to be recognized over five years.
Since the employees to whom the options were granted are employed by the Company, the Company is required to reflect the stock-based compensation expense associated with the options within its consolidated statements of operations. The options have a ten year term, the options granted during fiscal 2005 step-vest in equal amounts over five years with the final vesting having occurred on December 23, 2009, the options granted during fiscal 2006 step-vest in equal amounts over three years with final vesting occurring on December 23, 2008, the options granted in fiscal 2009 step-vest in equal amounts over five years with final vesting occurring on March 6, 2014 and the options granted in fiscal 2010 step-vest in equal amounts over five years with final vesting occurring on May 28, 2014, but vesting may accelerate for one participant if there is a change of control (as defined in the plan). One of the holders of options fully vested during fiscal 2007 upon entry into his employment separation and general release agreement on March 20, 2007. The Company has recorded $1,384,000, $2,622,000 and
83
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 8STOCKHOLDER'S EQUITY (Continued)
$207,000 of stock-based compensation expense related to these options within general and administrative: other and has recognized an income tax benefit of $0 in its Consolidated Statements of Operations during each of the periods ended April 1, 2010, April 2, 2009 and April 3, 2008, respectively. One of the previous holders of stock options held put rights associated with his options deemed to be within his control whereby he could require Holdings to repurchase his options and, as a result, the expense for these options was remeasured each reporting period as liability based options at the Holdings level and the related compensation expense was included in AMCE's financial statements. However, since the put option that caused liability classification was a put to AMCE's parent Holdings rather than AMCE, AMCE's financial statements reflect an increase to additional paid-in capital related to stock-based compensation of $1,384,000, $2,622,000 and $207,000 during each of the periods ended April 1, 2010, April 2, 2009 and April 3, 2008, respectively. For the option awards classified as liabilities by Holdings, the Company revalued the options at each period end following the grant date using the Black-Scholes model. In valuing this liability, Holdings used a fair value of common stock of $1,000 per share, which was based on a contemporaneous valuation reflecting market conditions as of April 3, 2008. In May 2008, Holdings was notified of the holder's intention to exercise the put option and Holdings made cash payments to settle the accrued liability of $3,911,000 during fiscal 2009. As a result of the exercise of the put right, there was no additional stock compensation expense related to these options in fiscal 2009 and the related options were canceled upon exercise of the put right during fiscal 2009.
The Company accounts for stock options using the fair value method of accounting and has valued the May 28, 2009 option grants using the Black-Scholes formula which included a valuation prepared by management on behalf of the Compensation Committee of the Board of Directors. This reflected market conditions as of May 28, 2009 which indicated a fair value price per share of the underlying shares of $339.59 per share, a purchase of 2,542 shares by Parent for $323.95 per share from the Company's former Chief Executive Officer pursuant to his Separation and General Release Agreement dated February 23, 2009 and a sale of 385.862 shares by Parent to the Company's current Chief Executive Officer pursuant to his Employment Agreement dated February 23, 2009 for $323.95 per share. See Note 1The Company and Significant Accounting Policies, Stock-based Compensation for more information regarding Parent's stock option plan.
On February 23, 2009, the Company entered into a Separation and General Release Agreement with Peter C. Brown (formerly Chairman of the Board, Chief Executive Officer and President of Parent, Holdings and AMCE), whereby all outstanding vested and unvested options were voluntarily forfeited. Stock compensation expense recorded in fiscal 2009 related only to awards that vested prior to February 23, 2009. Because all vested and unvested awards were forfeited, there is no additional compensation cost to recognize in future periods related to his awards.
84
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 8STOCKHOLDER'S EQUITY (Continued)
A summary of stock option activity under all plans is as follows:
|
April 1, 2010 | April 2, 2009 | April 3, 2008 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of Shares |
Weighted Average Exercise Price Per Share |
Number of Shares |
Weighted Average Exercise Price Per Share |
Number of Shares |
Weighted Average Exercise Price Per Share |
|||||||||||||
Outstanding at beginning of year |
26,811.1680905 | $ | 391.43 | 36,521.356392 | $ | 491.00 | 39,476.72873 | $ | 491.00 | ||||||||||
Granted(1) |
4,786.00000 | 339.59 | 15,980.45000 | 323.95 | | | |||||||||||||
Forfeited |
| | (25,690.6383015 | ) | | (2,455.372338 | ) | ||||||||||||
Exercised |
| | | | (500.00000 | ) | | ||||||||||||
Outstanding at end of year and expected to vest(1)(2) |
31,597.1680905 | $ | 383.58 | 26,811.1680905 | $ | 391.43 | 36,521.356392 | $ | 491.00 | ||||||||||
Exercisable at end of year(3) |
14,026.8080901 | $ | 452.94 | 8,784.574472 | $ | 491.00 | 25,681.40958 | $ | 491.00 | ||||||||||
Available for grant at end of year |
9,325.7042495 | 14,111.7042495 | 12,086.090418 | ||||||||||||||||
- (1)
- The
weighted average remaining contractual life for outstanding options was 7.6 years, 8.3 years, and 5.1 years for fiscal 2010, 2009
and 2008, respectively.
- (2)
- The
aggregate estimated intrinsic value for these options was $11,400,000 as of April 1, 2010.
- (3)
- The aggregate estimated intrinsic value for these options was $4,100,000 as of April 1, 2010.
For options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise (determined using the most recent contemporaneous valuation prior to the exercise) and the exercise price of the options. The total intrinsic value of options exercised was $412,000 during fiscal 2008 and there were no options exercised during fiscal 2009 and 2010. Parent received cash from the exercise of stock options during fiscal 2008 of $500,000 and a related tax deduction of $164,800.
85
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 9INCOME TAXES
Income tax provision reflected in the Consolidated Statements of Operations for the periods in the three years ended April 1, 2010 consists of the following components:
(In thousands)
|
April 1, 2010 | April 2, 2009 | April 3, 2008 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Current: |
|||||||||||
Federal |
$ | (2,800 | ) | $ | | $ | 800 | ||||
Foreign |
| 13,200 | 6,200 | ||||||||
State |
500 | 3,500 | 3,600 | ||||||||
Total current |
(2,300 | ) | 16,700 | 10,600 | |||||||
Deferred: |
|||||||||||
Federal |
(66,500 | ) | | (4,600 | ) | ||||||
Foreign |
| (1,900 | ) | 2,500 | |||||||
State |
| 2,300 | (700 | ) | |||||||
Total deferred |
(66,500 | ) | 400 | (2,800 | ) | ||||||
Total provision (benefit) |
(68,800 | ) | 17,100 | 7,800 | |||||||
Tax benefit from discontinued operations |
| (11,300 | ) | (6,780 | ) | ||||||
Total provision (benefit) from continuing operations |
$ | (68,800 | ) | $ | 5,800 | $ | 1,020 | ||||
Holdings has recorded no alternative minimum taxes as the consolidated tax group for which Holdings is a member expects no alternative minimum tax liability and pursuant to the tax sharing arrangement in place, Holdings has no liability.
Pre-tax income (losses) consisted of the following:
(In thousands)
|
April 1, 2010 | April 2, 2009 | April 3, 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Domestic |
$ | (21,396 | ) | $ | (101,066 | ) | $ | 22,091 | ||
Foreign |
(7,750 | ) | 7,008 | 8,442 | ||||||
Total |
$ | (29,146 | ) | $ | (94,058 | ) | $ | 30,533 | ||
86
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 9INCOME TAXES (Continued)
The difference between the effective tax rate on earnings (loss) from continuing operations before income taxes and the U.S. federal income tax statutory rate is as follows:
(In thousands)
|
April 1, 2010 | April 2, 2009 | April 3, 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Income tax expense (benefit) at the federal statutory rate |
(7,564 | ) | (40,280 | ) | 7,683 | |||||
Effect of: |
||||||||||
Foreign rate differential |
| | 1,990 | |||||||
State income taxes |
500 | 5,800 | 2,896 | |||||||
Change in ASC 740 (formerly FIN 48) reserve |
1,000 | (5,421 | ) | (5,373 | ) | |||||
Permanent items |
(540 | ) | | | ||||||
Change in ASC 740 (formerly APB 23) assertion |
| 401 | (6,220 | ) | ||||||
Valuation allowance |
(62,218 | ) | 45,111 | (970 | ) | |||||
Other, net |
22 | 189 | 1,014 | |||||||
Income tax expense (benefit) |
(68,800 | ) | 5,800 | 1,020 | ||||||
Effective income tax rate |
318.3 | % | (5.0 | )% | 4.6 | % | ||||
The fiscal 2008 change in ASC 740 assertion relates to a resolution reached in fiscal 2008 on a pre-filing agreement with a taxing authority which resulted in additional basis which was deducted on the 2007 tax return. The deduction was the result of a 2007 change in ASC 740 assertion. As a result of the additional basis, the Company did not have to utilize certain net operating loss carryforwards.
87
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 9INCOME TAXES (Continued)
The significant components of deferred income tax assets and liabilities as of April 1, 2010 and April 2, 2009 are as follows:
|
April 1, 2010 | April 2, 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Deferred Income Tax | Deferred Income Tax | |||||||||||
(In thousands)
|
Assets | Liabilities | Assets | Liabilities | |||||||||
Property |
$ | | $ | (1,948 | ) | $ | 32,130 | $ | | ||||
Investments in joint ventures |
| (57,109 | ) | | (50,709 | ) | |||||||
Intangible assets |
| (29,017 | ) | | (24,234 | ) | |||||||
Pension postretirement and deferred compensation |
19,150 | | 17,260 | | |||||||||
Accrued reserves and liabilities |
21,588 | | 23,653 | | |||||||||
Deferred interest |
25,660 | | 25,660 | | |||||||||
Deferred revenue |
113,667 | | 116,882 | | |||||||||
Deferred rents |
100,560 | | 100,343 | | |||||||||
Alternative minimum tax and other credit carryovers |
13,058 | | 15,265 | | |||||||||
Charitable contributions |
1,198 | | | | |||||||||
Net operating loss carryforward |
200,228 | | 103,273 | | |||||||||
Total |
$ | 495,109 | $ | (88,074 | ) | $ | 434,466 | $ | (74,943 | ) | |||
Less: Valuation allowance |
(302,535 | ) | | (321,523 | ) | | |||||||
Total deferred income taxes(1) |
$ | 192,574 | $ | (88,074 | ) | $ | 112,943 | $ | (74,943 | ) | |||
- (1)
- See
Note 6Supplemental Balance Sheet Information for additional disclosures about net current deferred tax assets and net
non-current deferred tax liabilities.
A rollforward of the Company's valuation allowance for deferred tax assets is as follows:
(In thousands)
|
Balance at Beginning of Period |
Additions Charged (Credited) to Revenues, Costs and Expenses |
Charged (Credited) to Other Accounts |
Deductions and Write-offs |
Balance at End of Period |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year 2010 |
|||||||||||||||||
Valuation Allowance-deferred income tax assets |
$ | 321,523 | (62,218 | ) | 43,230 | (1) | | $ | 302,535 | ||||||||
Fiscal Year 2009 |
|||||||||||||||||
Valuation Allowance-deferred income tax assets |
$ | 379,081 | 45,111 | (50,529) | (1) | (52,140) | (2) | $ | 321,523 | ||||||||
Fiscal Year 2008 |
|||||||||||||||||
Valuation Allowance-deferred income tax assets |
$ | 383,808 | (970 | ) | (3,757) | (1) | | $ | 379,081 |
- (1)
- Intercompany
tax sharing agreement, goodwill, and other comprehensive income adjustments in stockholder's equity.
- (2)
- Elimination of Cinemex deferred tax asset and change in valuation allowance through discontinued operations.
88
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 9INCOME TAXES (Continued)
The Company's federal income tax loss carryforward of $438,702,000 will begin to expire in 2020 and will completely expire in 2030 and will be limited annually due to certain change in ownership provisions of the Internal Revenue Code. The Company also has state income tax loss carryforwards of $874,317,000 which may be used over various periods ranging from 1 to 20 years.
Parent completed the repurchase of certain term loans under the Parent term Loan Facility in fiscal 2010. Based upon the historical tax sharing arrangement, Parent should utilize the Company's net operating losses in future years. During fiscal 2010, the Company reversed $1,500,000 of its valuation allowance through the income statement in anticipation of future utilization by Parent. As of April 2, 2009, the Company reversed $31,000,000 of its valuation allowance through Goodwill in anticipation of future utilization by Parent.
During fiscal 2010, management believed it was more likely than not that the Company had the ability to execute a feasible and prudent tax strategy that would provide for the realization of net operating losses that expire through 2022 by converting certain limited partnership units into common stock. Management has reduced its overall valuation allowance by $65,000,000 in fiscal 2010 for the estimated amount of net operating losses that would be realized as a result of this potential action.
The Company has recorded a valuation allowance against its remaining net deferred tax asset in U.S. and foreign jurisdictions of $302,535,000 as of April 1, 2010.
Effective March 30, 2007, the Company adopted accounting rules regarding uncertainty in income taxes. Relative to the implementation of this guidance, the Company's financial statements did not include any tax contingencies, after consideration of the partial/full valuation allowance recorded against net deferred tax assets. As a result of the adoption of this guidance, the Company recorded a $5,373,000 increase in current deferred tax assets, a $5,373,000 reduction of goodwill, a $5,373,000 current liability and a $5,373,000 charge to the beginning accumulated deficit that is reported as a cumulative effect adjustment for a change in accounting principle to the opening balance sheet position of stockholder's accumulated deficit at March 30, 2007. A reconciliation of the change in the amount of unrecognized tax benefits during the year ended April 1, 2010 was as follows:
(In millions)
|
April 1, 2010 | April 2, 2009 | April 3, 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at Beginning of Period |
$ | 33.5 | $ | 38.7 | $ | 44.1 | ||||
Gross IncreasesCurrent Period Tax Positions |
1.5 | 1.5 | | |||||||
Gross DecreasesTax Position in Prior Periods |
(.5 | ) | (2.1 | ) | | |||||
Favorable Resolutions with Authorities |
| | (5.4 | ) | ||||||
Expired Attributes |
| | | |||||||
Lapse of Statute of Limitations |
| (4.6 | ) | | ||||||
Cash Settlements |
| | | |||||||
Balance at End of Period |
$ | 34.5 | $ | 33.5 | $ | 38.7 | ||||
As of April 1, 2010, the Company recognized a $7,000,000 liability for uncertain tax positions and a $7,000,000 deferred tax asset for net operating losses on the balance sheet. These uncertain positions
89
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 9INCOME TAXES (Continued)
were taken in tax years where the Company generated positive taxable income and they were previously netted against deferred tax assets on the balance sheet.
The Company's effective tax rate would not be significantly impacted by the ultimate resolution of the uncertain tax positions because of the retention of a valuation allowance against its net operating loss carryforwards.
During December 2007, the IRS informed the Company of its acceptance of certain tax conclusions that the Company had taken on a transaction the Company entered into during the fiscal year ended March 29, 2007 that were presented to the IRS in a Request for a Pre-Filing Agreement. As a result of the IRS accepting the Company's tax conclusions, the $5,373,000 reserve established with the adoption of the income tax uncertainty guidance was resolved and the tax benefit was recorded during the fiscal year ended April 3, 2008.
The Company recognizes income tax-related interest expense and penalties as income tax expense and general, and administrative expense, respectively. As of April 3, 2008, the Company did not have any interest or penalties accrued associated with unrecognized tax benefits. The liabilities for interest and penalties increased by $101,000 and $45,000, as of April 1, 2010 and April 2, 2009, respectively.
There are currently unrecognized tax benefits which the Company anticipates will be resolved in the next 12 months; however, the Company is unable at this time to estimate what the impact on its unrecognized tax benefits will be.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. An IRS examination of the tax years February 28, 2002 through December 31, 2003 of the former Loews Cineplex Entertainment Corporation and subsidiaries was concluded during fiscal 2007. An IRS examination for the tax years ended March 31, 2005 and March 30, 2006 was completed during 2009. Generally, tax years beginning after March 28, 2002 are still open to examination by various taxing authorities. Additionally, the Company has net operating loss ("NOL") carryforwards for tax years ended October 31, 2000 through March 28, 2002 in the U.S. and various state jurisdictions which have carryforwards of varying lengths of time. These NOLs are subject to adjustment based on the statute of limitations of the return in which they are utilized, not the year in which they are generated. Various state, local and foreign income tax returns are also under examination by taxing authorities. The Company does not believe that the outcome of any examination will have a material impact on its financial statements.
NOTE 10LEASES
Beginning in fiscal 1998, the Company has completed numerous real estate lease agreements with Entertainment Properties Trust ("EPT") including transactions accounted for as sale and leaseback transactions in accordance with Accounting Standards Codification No. 840, Leases. The leases are triple net leases that require the Company to pay substantially all expenses associated with the operation of the theatres such as taxes and other charges, insurance, utilities, service, maintenance and any ground lease payments. As of April 1, 2010, the Company leased from EPT 42 theatres with 924 screens located in the United States and Canada.
90
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 10LEASES (Continued)
Following is a schedule, by year, of future minimum rental payments required under existing operating leases that have initial or remaining non-cancelable terms in excess of one year as of April 1, 2010:
(In thousands)
|
Minimum operating lease payments |
|||
---|---|---|---|---|
2011 |
$ | 390,558 | ||
2012 |
392,317 | |||
2013 |
380,224 | |||
2014 |
353,535 | |||
2015 |
350,352 | |||
Thereafter |
2,016,646 | |||
Total minimum payments required |
$ | 3,883,632 | ||
As of April 1, 2010, the Company has a lease agreement for one theatre with 12 screens which is expected to begin construction in fiscal 2011 and open in fiscal 2012. Included above are equipment leases payable to DCIP.
Included in other long-term liabilities as of April 1, 2010 and April 2, 2009 is $226,061,000 and $225,957,000, respectively, of deferred rent representing future minimum rental payments for leases with scheduled rent increases and unfavorable lease liabilities.
Rent expense is summarized as follows:
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Minimum rentals |
$ | 391,493 | $ | 398,289 | $ | 387,449 | ||||
Common area expenses |
41,189 | 43,409 | 44,667 | |||||||
Percentage rentals based on revenues |
7,982 | 7,105 | 7,273 | |||||||
Theatre rent |
440,664 | 448,803 | 439,389 | |||||||
General and administrative and other |
1,427 | 1,227 | 1,463 | |||||||
Total |
$ | 442,091 | $ | 450,030 | $ | 440,852 | ||||
NOTE 11EMPLOYEE BENEFIT PLANS
The Company sponsors frozen non-contributory qualified and non-qualified defined benefit pension plans generally covering all employees who, prior to the freeze, were age 21 or older and had completed at least 1,000 hours of service in their first twelve months of employment, or in a calendar year ending thereafter, and who were not covered by a collective bargaining agreement. The Company also offers eligible retirees the opportunity to participate in a health plan (medical and dental). Certain employees are eligible for subsidized postretirement medical benefits. The eligibility for these benefits is based upon a participant's age and service as of January 1, 2009. The Company also sponsors a postretirement deferred compensation plan.
91
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 11EMPLOYEE BENEFIT PLANS (Continued)
In the fourth quarter of fiscal 2009, the Company recorded a curtailment gain of $1,072,000 as a result of the retirement of its former chief executive officer on February 23, 2009. The curtailment gain relates to the Retirement Enhancement Plan which included only one active unvested participant and one retired vested participant. Because the former chief executive officer had not vested in his eligible benefit, his retirement created a significant elimination of the accrual of deferred benefits for his future services.
On May 2, 2008, the Company's Board of Directors approved revisions to the Company's Post Retirement Medical and Life Insurance Plan effective January 1, 2009 and on July 3, 2008 the changes were communicated to the plan participants. As a result of these revisions, the Company recorded a negative prior service cost of $5,969,000 through other comprehensive income to be amortized over eleven years based on expected future service of the remaining participants.
Effective March 29, 2007, the Company adopted the amended guidance for employers' accounting for defined benefit pension and other postretirement plans in ASC 715, Compensation-Retirement Benefits, ("ASC 715"). ASC 715 requires that, effective for fiscal years ending after December 15, 2008 the assumptions used to measure annual pension and retiree medical expense be determined as of the balance sheet date and all plan assets and liabilities be reported as of that date. Accordingly, as of the beginning of fiscal 2009, the Company changed the measurement date for the annual pension and postretirement medical expense and all plan assets and liabilities by applying the transition option under which a 15 month measurement was determined as of January 1, 2008, that covers the period to the Company's year-end balance sheet date. As a result of this change in measurement date, the Company recorded an $82,000 loss to fiscal 2009 opening accumulated deficit and a $411,000 unrealized loss to other comprehensive income.
As a result of the Merger in January 2006, the Company acquired two pension plans in the U.S. and one in Mexico. One of the U.S. plans is a frozen cash balance plan and neither of the U.S. plans has admitted new participants post-merger. On December 29, 2008, the Company sold all of its interests in Cinemex, which includes the Mexico Plan. See Note 2Discontinued Operations for more information.
On November 7, 2006, the Company's Board of Directors approved an amendment to freeze the Company's Defined Benefit Retirement Income Plan, Supplemental Executive Retirement Plan and Retirement Enhancement Plan (the "Plans") as of December 31, 2006. On December 20, 2006 the Company amended and restated the Plans to implement the freeze as of December 31, 2006. As a result of the freeze there will be no further benefits accrued after December 31, 2006, but continued vesting for associates with less than five years of vesting service. The Company will continue to fund existing benefit obligations and there will be no new participants in the future. As a result of amending and restating the Plans to implement the freeze, the Company recognized a curtailment gain of $10,983,000 in fiscal 2007 in its consolidated financial statements which was recorded within general and administrative: other. Additionally, the Company terminated the LCE post-retirement plan as of December 31, 2006 and merged this plan into the AMCE post-retirement plan as of January 1, 2007.
The measurement date used to determine pension and other postretirement benefits is April 1, 2010.
92
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 11EMPLOYEE BENEFIT PLANS (Continued)
Net periodic benefit cost for the plans consists of the following:
|
Pension Benefits | Other Benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
53 Weeks Ended April 3, 2008 |
||||||||||||||
Components of net periodic Benefit cost: |
||||||||||||||||||||
Service cost |
$ | 180 | $ | 369 | $ | 443 | $ | 210 | $ | 402 | $ | 846 | ||||||||
Interest cost |
4,403 | 4,468 | 4,440 | 1,296 | 1,111 | 1,555 | ||||||||||||||
Expected return on plan assets |
(2,990 | ) | (5,098 | ) | (4,691 | ) | | | | |||||||||||
Amortization of prior service credit |
| | | (543 | ) | (407 | ) | | ||||||||||||
Amortization of net transition obligation |
| 28 | 39 | | | | ||||||||||||||
Amortization of net (gain) loss |
134 | (1,622 | ) | (1,115 | ) | (278 | ) | (69 | ) | | ||||||||||
Settlement |
| | (56 | ) | | | | |||||||||||||
Curtailment |
| (1,072 | ) | | | | | |||||||||||||
Net periodic benefit cost |
$ | 1,727 | $ | (2,927 | ) | $ | (940 | ) | $ | 685 | $ | 1,037 | $ | 2,401 | ||||||
The following table summarizes the changes in other comprehensive income:
|
Pension Benefits | Other Benefits | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
|||||||||
Net (gain) loss |
$ | 4,224 | $ | 16,086 | $ | 7,315 | $ | (3,604 | ) | ||||
Net prior service credit |
| | (3,727 | ) | (5,969 | ) | |||||||
Amortization of net gain (loss) |
(134 | ) | 1,622 | 543 | 69 | ||||||||
Amortization of prior service credit |
| | 278 | 407 | |||||||||
Amortization of net transition obligation |
| (28 | ) | | | ||||||||
Impact of changing measurement date |
| 411 | | | |||||||||
Disposition of Cinemex |
| (877 | ) | | | ||||||||
Total recognized in other comprehensive income |
$ | 4,090 | $ | 17,214 | $ | 4,409 | $ | (9,097 | ) | ||||
Net periodic benefit cost |
1,727 | (2,927 | ) | 685 | 1,037 | ||||||||
Total recognized in net periodic benefit cost and other comprehensive income |
$ | 5,817 | $ | 14,287 | $ | 5,094 | $ | (8,060 | ) | ||||
93
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 11EMPLOYEE BENEFIT PLANS (Continued)
The following tables set forth the plan's change in benefit obligations and plan assets and the accrued liability for benefit costs included in the consolidated balance sheets:
|
Pension Benefits | Other Benefits | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
||||||||||
Change in benefit obligation: |
||||||||||||||
Benefit obligation at beginning of period |
$ | 60,690 | $ | 73,330 | $ | 18,101 | $ | 26,830 | ||||||
Service cost |
180 | 414 | 210 | 632 | ||||||||||
Interest cost |
4,403 | 5,604 | 1,296 | 1,727 | ||||||||||
Plan participant's contributions |
| | 417 | 447 | ||||||||||
Actuarial (gain) loss |
13,694 | (12,017 | ) | 7,315 | (3,604 | ) | ||||||||
Plan amendment |
| | (3,727 | ) | (5,969 | ) | ||||||||
Benefits paid |
(2,526 | ) | (4,638 | ) | (1,628 | ) | (1,962 | ) | ||||||
Disposition of Cinemex |
| (1,468 | ) | | | |||||||||
Currency translation adjustment |
| (535 | ) | | | |||||||||
Benefit obligation at end of period |
$ | 76,441 | $ | 60,690 | $ | 21,984 | $ | 18,101 | ||||||
|
Pension Benefits | Other Benefits | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
52 Weeks Ended April 1, 2010 |
52 Weeks Ended April 2, 2009 |
||||||||||
Change in plan assets: |
||||||||||||||
Fair value of plan assets at beginning of period |
$ | 39,600 | $ | 62,114 | $ | | $ | | ||||||
Actual return on plan assets gain (loss) |
12,461 | (20,623 | ) | | | |||||||||
Employer contribution |
4,922 | 2,747 | 1,211 | 1,515 | ||||||||||
Plan participant's contributions |
| | 417 | 447 | ||||||||||
Benefits paid |
(2,526 | ) | (4,638 | ) | (1,628 | ) | (1,962 | ) | ||||||
Fair value of plan assets at end of period |
$ | 54,457 | $ | 39,600 | $ | | $ | | ||||||
Net liability for benefit cost: |
||||||||||||||
Funded status |
$ | (21,984 | ) | $ | (21,090 | ) | $ | (21,984 | ) | $ | (18,101 | ) | ||
|
Pension Benefits | Other Benefits | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
April 1, 2010 | April 2, 2009 | April 1, 2010 | April 2, 2009 | ||||||||||
Amounts recognized in the Balance Sheet: |
||||||||||||||
Accrued expenses and other liabilities |
$ | (192 | ) | $ | (249 | ) | $ | (1,231 | ) | $ | (1,300 | ) | ||
Other long-term liabilities |
(21,792 | ) | (20,841 | ) | (20,753 | ) | (16,801 | ) | ||||||
Net liability recognized |
$ | (21,984 | ) | $ | (21,090 | ) | $ | (21,984 | ) | $ | (18,101 | ) | ||
Aggregate accumulated benefit obligation |
$ | (76,441 | ) | $ | (60,690 | ) | $ | (21,984 | ) | $ | (18,101 | ) | ||
94
Marquee Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 11EMPLOYEE BENEFIT PLANS (Continued)